Form10vk









 

 



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, 2010





Commission File No. 001-09305




STIFEL
	FINANCIAL CORP.




(Exact Name of Registrant as specified in its Charter)








     
     
     




    DELAWARE

     
    43-1273600


    (State or Other Jurisdiction of

     
    (IRS Employer Identification No.)


    Incorporation or Organization)
     
     


     
     
     


    501 North Broadway
     
     


    St. Louis, Missouri
     
    63102


    (Address of Principal Executive Offices)

     
    (Zip Code)







(314) 342-2000

(Registrant’s Telephone Number, Including Area Code)




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








     
     
     




     

     
    Name of Each Exchange


    Title of Each Class

     
    On Which Registered


     

     
     


    Common Stock, par value $0.15 per share

     
    The New York Stock Exchange


     
     
    Chicago Stock Exchange


    Preferred Stock Purchase Rights

     
    The New York Stock Exchange



     
     
    Chicago Stock Exchange







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




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




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




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




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





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










     
     
     
     
     
     
     




    Large accelerated filer þ

     
    Accelerated filer o

     
    Non-accelerated filer o

     
    Smaller reporting company o


     

     
     
     
    (Do not check if a smaller reporting company)
     
     








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






The aggregate market value of the registrant's common stock, $0.15 par value per
share, held by non-affiliates of the registrant as of the close of business on
June 30, 2010, was $1,452,102,019.(1)  



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 23, 2011, was 35,912,912,
which includes exchangeable shares of TWP Acquisition Company (Canada), Inc., a
wholly owned subsidiary of the registrant.
These shares are exchangeable at any time into an aggregate of 281,720 shares of
common stock of the registrant; entitle the holder to dividend and other rights
substantially economically equivalent to those of a share of common stock; and,
through a voting trust, entitle the holder to a vote on matters presented to
common shareholders.



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




DOCUMENTS INCORPORATED BY REFERENCE






	Portions of the Proxy Statement for the annual meeting of shareholders, to
	be filed within 120 days of our fiscal year ended December 31, 2010, are
	incorporated by reference in Part III hereof.




 


 





 





 







STIFEL FINANCIAL CORP.




TABLE OF CONTENTS


	
		
		

		 
		
		

		 
		
		

		 
		
		 
	
	
		
		


		Part I
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		


		Item 1.
		
		

		Business
		
		4
	
	
		
		

		 
		
		


		Item 1A.
		
		

		Risk Factors
		
		15
	
	
		
		

		 
		
		


		Item 1B.
		
		

		Unresolved Staff Comments
		
		23
	
	
		
		

		 
		
		


		Item 2.
		
		

		Properties
		
		24
	
	
		
		

		 
		
		


		Item 3.
		
		

		Legal Proceedings
		
		25
	
	
		
		

		 
		
		

		Item 4.
		
		

		(Removed and Reserved)
		
		25
	
	
		
		


		Part II
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		

		Item 5.
		
		


		Market for Registrant's Common Equity, Related Stockholder Matters and
		Issuer Purchases of Equity Securities
		
		26
	
	
		
		

		 
		
		


		Item 6.
		
		

		Selected Financial Data
		
		29
	
	
		
		

		 
		
		


		Item 7.
		
		

		Management's Discussion and Analysis
		of Financial Condition and Results of Operations
		
		30
	
	
		
		

		 
		
		


		Item 7A.
		
		

		Quantitative and Qualitative
		Disclosures About Market Risk
		
		73
	
	
		
		

		 
		
		


		Item 8.
		
		

		Financial Statements and
		Supplementary Data
		
		78
	
	
		
		

		 
		
		


		Item 9.
		
		

		Changes in and Disagreements with
		Accountants and Accounting and Financial Disclosure
		
		143
	
	
		
		

		 
		
		


		Item 9A.
		
		

		Controls and Procedures
		
		143
	
	
		
		

		 
		
		


		Item 9B.
		
		

		Other Information
		
		145
	
	
		
		


		Part III
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		


		Item 10.
		
		

		Directors, Executive Officers and
		Corporate Governance
		
		145
	
	
		
		

		 
		
		


		Item 11.
		
		

		Executive Compensation
		
		145
	
	
		
		

		 
		
		


		Item 12.
		
		


		Security Ownership of Certain Beneficial Owners and Management and
		Related Stockholder Matters
		
		145
	
	
		
		

		 
		
		


		Item 13.
		
		

		Certain Relationships and Related
		Transactions, and Director Independence
		
		146
	
	
		
		

		 
		
		


		Item 14.
		
		

		Principal Accounting Fees and
		Services
		
		146
	
	
		
		


		Part IV
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		

		Item 15.
		
		

		Exhibits, Financial Statement
		Schedules
		
		147
	
	
		
		

		 
		
		

		 
		
		

		 
		
		 
	
	
		
		

		 
		
		

		 
		
		

		Signatures
		
		151
	
	
		
		

		 
		
		

		 
		
		

		 
		
		 
	



3












PART I




Certain
statements in this report may be considered forward-looking. Statements that are
not historical or current facts, including statements about beliefs and
expectations, are forward-looking statements. These forward-looking statements
cover, among other things, statements made about general economic, political,
regulatory, and market conditions, the investment banking and brokerage
industries, our objectives and results, and also may include our belief
regarding the effect of various legal proceedings, management expectations, our
liquidity and funding sources, counterparty credit risk, or other similar
matters. Forward-looking statements involve inherent risks and uncertainties,
and important factors could cause actual results to differ materially from those
anticipated, including those factors discussed below under "Risk Factors" in
Item 1A, as well as those discussed in "External Factors Impacting Our Business"




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




Because of these and other uncertainties, our actual future results may be
materially different from the results indicated by these forward-looking
statements. In addition, our past results of operations do not necessarily
indicate our future results.
We
undertake no obligation to publicly release any revisions to the forward-looking
statements or reflect events or circumstances after the date of this document.



ITEM 1.
 BUSINESS



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





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




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



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




4











Business
Segments



We operate
in the following segments: Global Wealth Management, Institutional Group, 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 Institutional Group. 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, 2010, we employed 4,906 associates, including 1,775 financial
advisors. As of December 31, 2010, through our broker-dealer subsidiaries, we
provide securities-related financial services to approximately 1.0 million
client accounts of customers throughout the United States, Canada, and Europe.
Our customers include individuals, corporations, municipalities, and
institutions. Although we have customers throughout the United States, our major
geographic area of concentration is in the Midwest and Mid-Atlantic regions,
with a growing presence in the Northeast, Southeast, and Western United States.
No single client accounts for a material percentage of any segment of our
business. Our inventory, which we believe is of modest size and intended to turn
over quickly, exists to facilitate order flow and support the investment
strategies of our clients.
Although
we do not engage in significant proprietary trading for our own account, the
inventory of securities held to facilitate customer trades and our market-making
activities are sensitive to market movements.

Furthermore, our balance sheet is highly liquid, without material holdings of
securities that are difficult to value or remarket. We believe that our broad
platform, fee-based revenues, and strong distribution network position us well
to take advantage of current trends within the financial services sector.



5










GLOBAL
WEALTH MANAGEMENT



We provide
securities transaction, brokerage, and investment services to our clients
through the consolidated Stifel Nicolaus branch system and through CSA, our
wholly owned independent contractor subsidiary, and TWP. We have made
significant investments in personnel and technology to grow the Private Client
Group over the past ten years. At December 31, 2010, 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 1,775 financial advisors located in 285 branch offices in 44 states and the
District of Columbia. In addition, we have 160 independent contractors.






Consolidated Stifel Nicolaus Branch System



Our
financial advisors provide a broad range of investments and services, including
financial planning services to our clients. We offer equity securities; taxable
and tax-exempt fixed income securities, including municipal, corporate, and
government agency securities; preferred stock; and unit investment trusts. We
also offer a broad range of externally managed fee-based products. In addition,
we offer insurance and annuity products and investment company shares through
agreements with numerous third-party distributors. We encourage our financial
advisors to pursue the products and services that best fit their clients' needs
and that they feel most comfortable recommending. 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, 2010, CSA had affiliations with 160 independent contractors in 127
branch offices in 27 states. CSA's independent contractors provide the same
types of financial products and services to its private clients as does Stifel
Nicolaus. Under their contractual arrangements, these independent contractors
may also provide accounting services, real estate brokerage, insurance, or other
business activities for their own account. However, all securities transactions
must be transacted through CSA. Independent contractors are responsible for all
of their direct costs and are paid a larger percentage of commissions to
compensate them for their added expenses. CSA is an introducing broker-dealer
and, as such, clears its transactions through Stifel Nicolaus.



Customer
Financing



Client
securities transactions are effected on either a cash or margin basis. The
customer deposits less than the full cost of the security when securities are
purchased on a margin basis. We make a loan for the balance of the purchase
price. Such loans are collateralized by the securities purchased. The amounts of
the loans are subject to the margin requirements of Regulation T of the Board of
Governors of the Federal Reserve System, Financial Industry Regulatory Authority
("FINRA")

margin requirements, and our internal policies, which usually are more
restrictive than Regulation T or FINRA requirements. In permitting customers to
purchase securities on margin, we are subject to the risk of a market decline,
which could reduce the value of our collateral below the amount of the
customers' indebtedness.



Stifel
Bank



In April
2007, we completed the acquisition of First Service, a St. Louis-based
full-service bank, which now operates as Stifel Bank & Trust and is reported in
the Global Wealth Management segment. Since the closing of the bank acquisition,
we have grown retail and commercial bank assets from $145.6 million on
acquisition date to $1.8
billion
at December 31, 2010. Through Stifel Bank, we offer retail and commercial
banking services to private and corporate clients, including personal loan
programs, such as fixed and variable mortgage loans, home equity lines of
credit, personal loans, loans secured by CDs or savings, automobile loans, and
securities-based loans, as well as commercial lending programs, such as small
business loans, commercial real estate loans, lines of credit, credit cards,
term loans, and inventory and receivables financing, in addition to other
banking products. We believe this acquisition will not only help us serve our
private clients more effectively by offering them a broader range of services,
but will also enable us to better utilize our private client cash balances.



6











INSTITUTIONAL GROUP



The
Institutional Group segment includes research, equity and fixed income
institutional sales and trading, investment banking, public finance, and
syndicate, and consisted of 980 employees at December 31, 2010.



Research



Our
research department consisted of
218
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
3,000
domestic securities at December 31, 2010. In our various sales and trading
activities, we take a focused approach on servicing our clients as opposed to
proprietary trading for our own account. Located in
18
cities in the United States as well as Geneva, London, and Madrid in Europe and
Toronto and Calgary, our equity sales and trading team, consisting of
197
professionals and support associates, services approximately
3,500
clients globally.



The fixed
income institutional sales and trading group consists of
227
professionals and support associates, located in
32
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
investment banking group, consisting of
266
professionals and support associates, focuses on middle-market companies as well
as on larger companies in targeted industries where we have particular
expertise, which include real estate, financial services, healthcare,
aerospace/defense and government services, telecommunications, transportation,
energy, business services, consumer services, industrial, technology, and
education.  



Our public
finance group acts as an underwriter and dealer in bonds issued by states,
cities, and other political subdivisions and acts as manager or participant in
offerings managed by other firms. The public finance group consists of
59
professionals and support associates.



Syndicate



Our
syndicate department, which consists of 13 origination and execution
professionals and support associates, coordinates marketing, distribution,
pricing, and stabilization of our managed equity and debt offerings.  In
addition, the department coordinates our underwriting participations and selling
group opportunities managed by other investment banking firms.



OTHER
SEGMENT



The Other
segment includes interest income from stock borrow activities, unallocated
interest expense, interest income and gains and losses from investments held,
compensation expense associated with the deferred compensation plan
modification, and all unallocated overhead cost 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;
and general administration and acquisition charges primarily related to the TWPG
acquisition.
At
December 31, 2010, we employed 643 persons in this segment.



7











BUSINESS CONTINUITY



We have
developed a business continuity plan that is designed to permit continued
operation of business critical functions in the event of disruptions to our St.
Louis, Missouri headquarters facility. Several critical business applications
are supported by our outside vendors who maintain backup capabilities. We
periodically participate in testing these backup facilities. Likewise, the
business functions that we run internally can be supported without the St. Louis
headquarters, through a combination of redundant computer facilities in other
east and west coast data centers, and from certain 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
mission-critical processing activity to alternate locations, which can be
staffed with relocated personnel as appropriate.



GROWTH
STRATEGY



We believe
our plans for growth will allow us to increase our revenues and to expand our
role with clients as a valued partner. In executing our growth strategy, we take
advantage of the consolidation among mid-tier firms, which we believe provides
us opportunities in our private client and capital markets businesses. We do not
create specific growth or business plans for any particular type of acquisition,
focus on specific firms, or geographic expansion, nor do we establish
quantitative goals such as intended numbers of new hires or new office openings;
however, our corporate philosophy has always been to be in a position to take
advantage of opportunities as they arise. We intend to pursue the following
strategies with discipline:




8











COMPETITION



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



We rely on
the expertise acquired in our market area over our 120-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 regulation
under federal and state laws. The Securities and Exchange Commission ("SEC") is
the federal agency charged with the administration of the federal securities
laws. Much of the regulation of broker-dealers, however, has been delegated to
self-regulatory organizations ("SRO"), principally FINRA, the Municipal
Securities Rulemaking Board, and securities exchanges. SROs adopt rules (which
are subject to approval by the SEC) that govern the industry and conduct
periodic examinations of member broker-dealers. Securities firms are also
subject to regulation by state securities commissions in the states in which
they are registered. A number of changes have been proposed to the rules and
regulations that govern our securities business, and other rules and regulations
have been adopted, which may result in changes in the way we conduct our
business.



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



Additional
legislation, changes in rules promulgated by the SEC and by SROs, and changes in
the interpretation or enforcement of existing laws and rules often directly
affect the method of operation and profitability of broker-dealers. The SEC and
the SROs conduct regular examinations of our broker-dealer subsidiaries and also
initiate targeted and other specific inquiries from time to time, which
generally include the investigation of issues involving substantial portions of
the securities industry. The SEC and the SROs may 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.





Our U.S.
broker-dealer subsidiaries are required by federal law to belong to Securities
Investors Protection Corporation ("SIPC"). When the SIPC fund falls below a
certain amount, members are required to pay annual assessments to replenish the
reserves. If SIPC fund levels become inadequate, certain of our domestic
broker-dealer subsidiaries may be required to pay a special assessment.



9










As
broker-dealers, Stifel Nicolaus, TWP, 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 and TWP have chosen to calculate their net capital under the
alternative method, which prescribes that their net capital shall not be less
than the greater of $1.0 million or two percent of aggregate debit balances
(primarily receivables from customers and broker-dealers) computed in accordance
with the SEC's Customer Protection Rule (Rule 15c3-3). CSA calculates its net
capital under the aggregate indebtedness method, whereby its aggregate
indebtedness may not be greater than fifteen times its net capital (as defined).
Both methods allow broker-dealers to increase their commitments to customers
only to the extent their net capital is deemed adequate to support an increase.
Our European subsidiaries, SN Ltd and TWPIL, are subject to the regulatory
supervision and requirements of the Financial Services Authority ("FSA") in the
United Kingdom.
For
further discussion of our net capital requirements, see Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."



The
financial services industry in the U.S. is subject to extensive regulation under
federal and state laws. The U.S. government recently enacted financial services
reform legislation known as the Dodd-Frank Wall Street Reform & Consumer
Protection Act ("Dodd-Frank Act"). Because of the nature of our business and
business practices, this legislation may have a significant direct impact on our
operations. However, because many of the implementing regulations will result
from further studies and are yet to be written by the various regulatory
agencies, the impact is uncertain.  



SN Canada,
our registered Canadian broker-dealer subsidiary, is subject to regulation by
the securities commissions of Ontario, Quebec, Alberta, British Columbia,
Manitoba, Saskatchewan, and Nova Scotia; is a member of the Investment Industry
Regulatory Organization of Canada ("IIROC"); and is a participating organization
of the Toronto Stock Exchange, a member of the TSX Venture Exchange, and a
dealer with the Canadian National Stock Exchange.



The
financial services industry in Canada is subject to comprehensive regulation
under both federal and provincial laws. Securities commissions have been
established in all provinces and territorial jurisdictions which are charged
with the administration of securities laws. Investment dealers in Canada are
also subject to regulation by SROs, which are responsible for the enforcement
of, and conformity with, securities legislation for their members and have been
granted the powers to prescribe their own rules of conduct and financial
requirements of members.



SN Canada
is required by the IIROC to belong to the Canadian Investors Protection Fund
("CIPF"), whose primary role is investor protection. The CIPF Board of Directors
determines the fund size required to meet its coverage obligations and sets a
quarterly assessment rate. The CIPF provides protection for securities and cash
held in client accounts. This coverage does not protect against market
fluctuations.



See the
section entitled "Liquidity and Capital Resources" in Item 7 of this report for
further information on SEC, FINRA, FSA, and IIROC regulations pertaining to
broker-dealer regulatory 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
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on our company's and Stifel Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, our company and Stifel Bank must meet specific capital
guidelines that involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. Our company's and Stifel Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors. Quantitative measures established by
regulation to ensure capital adequacy require our company and Stifel Bank to
maintain minimum amounts and ratios of total and Tier 1 capital (as defined in
the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as
defined) to average assets (as defined). We may be required to increase our
regulatory capital and pay higher FDIC premiums, including special assessments,
due to the impact of increased bank failures over the last two years on the
insurance fund of the FDIC.



10










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



In
addition, TWP and several other wholly owned subsidiaries of ours, including
Thomas Weisel Capital Management LLC, Thomas Weisel Asset Management LLC, TW
Asset Management LLC, and Thomas Weisel Global Growth Partners LLC, are
registered as investment advisers with the SEC and, therefore, are subject to
its regulation and oversight.



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 and Compensation
Committees, ethical standards for our senior financial officers, implementation
of an internal control structure and procedures for financial reporting, and
additional responsibilities regarding financial statements for our Chief
Executive Officer and Chief Financial Officer and their assessment of our
internal controls over financial reporting. Compliance with all aspects of the
Act, particularly the provisions related to management's assessment of internal
controls, has imposed additional costs on our company, reflecting internal staff
and management time, as well as additional audit fees since the Act went into
effect.



11










Executive
Officers




Information regarding our executive officers and their ages as of February
28,
2011, are as follows:


	
		
		


		Name
		
		

		 
		
		


		Age
		
		

		 
		
		


		Position(s)
	
	
		
		


		Ronald J. Kruszewski

		

		 

		

		 
		
		

		 
		
		

		52

		

		 

		

		 
		
		

		 
		
		


		Co-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.
	
	
		
		


		Thomas W. Weisel
		
		

		 
		
		

		70
		
		

		 
		
		


		Co-Chairman of the Board of Directors of the Company.
	
	
		
		


		Scott B. McCuaig

		

		 
		
		

		 
		
		

		61

		

		 
		
		

		 
		
		


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


		James M. Zemlyak

		

		 

		

		 
		
		

		 
		
		

		51

		

		 

		

		 
		
		

		 
		
		


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


		Richard J. Himelfarb

		

		 

		

		 
		
		

		 
		
		

		69

		

		 

		

		 
		
		

		 
		
		


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


		David M. Minnick

		

		 
		
		

		 
		
		

		54

		

		 
		
		

		 
		
		


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


		Thomas P. Mulroy

		

		 

		

		 
		
		

		 
		
		

		49

		

		 

		

		 
		
		

		 
		
		


		Senior Vice President and Director of the Company and Executive Vice
		President, Co-Director of Institutional Group, and Director of Stifel
		Nicolaus.
	
	
		
		


		Victor J. Nesi

		

		 

		

		 
		
		

		 
		
		

		50

		

		 

		

		 
		
		

		 
		
		


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


		Ben A. Plotkin

		

		 
		
		

		 
		
		

		55

		

		 
		
		

		 
		
		


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


		David D. Sliney

		

		 
		
		

		 
		
		

		41

		

		 
		
		

		 
		
		


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



12











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




Thomas W. Weisel
was elected Co-Chairman of the Board of Directors of our company in August 2010
after the completion of the merger between our company and Thomas Weisel
Partners Group, Inc. Prior thereto, Mr. Weisel served as Chairman and CEO of
Thomas Weisel Partners Group, Inc., a firm he founded, from 1998 to June 2010.
Prior to founding Thomas Weisel Partners, Mr. Weisel was a founder, in 1971, of
Robertson, Coleman, Siebel & Weisel that became Montgomery Securities in 1978,
where he was Chairman and CEO until September 1998. Mr. Weisel served as a Board
Member of the Stanford Endowment from 2001 to 2009 and as an Advisory Board
Member of Harvard Business School from 2007 to 2009. Mr. Weisel served as a
director on the NASDAQ Stock Market board of directors from 2002 to 2006.




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



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



13











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




AVAILABLE INFORMATION



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




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



14











ITEM 1A. 


RISK
FACTORS



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



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



We are
engaged in various financial services businesses. As such, we are affected by
economic and political conditions. These conditions may directly and indirectly
impact a number of factors that may be detrimental to our operating results,
including the inflation rate, the related impact on the securities markets,
including changes in volume and price levels of securities, fluctuations in
interest rates, reduced investor confidence, and a slowdown in economic
activity. These conditions historically have impacted our trading volume and net
revenues and affected our profitability. Additionally, a decline in the strength
of the U.S. economy can lead to deterioration in credit quality and decreased
loan demand. 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 potentially reduced investment banking revenues, given that associated fees
are directly related to the number and size of transactions in which we
participate.  



A
significant portion of our revenue is derived from commissions, margin interest
revenue, principal transactions, asset management and service fees, and
investment banking fees. Accordingly, severe market fluctuations, weak economic
conditions, or a decline in stock prices, trading volumes, or liquidity could
have an adverse effect 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.



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



In
addition, in certain transactions, we are required to post collateral to secure
our obligations to our 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 a 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
market and economic conditions have led to new legislation and numerous
proposals for changes in the regulation of the financial services industry,
including significant additional legislation and regulation in the United States
and abroad. The Dodd-Frank Act calls for sweeping changes in the supervision and
regulation of the financial industry designed to provide for greater oversight
of financial industry participants, reduce risk in banking practices and in
securities and derivatives trading, enhance public company corporate governance
practices and executive compensation disclosures, and provide for greater
protections to individual consumers and investors. Certain elements of the
Dodd-Frank Act became effective immediately, though the details of many
provisions are subject to additional studies and will not be known until final
rules are adopted by applicable regulatory agencies. The ultimate impact that
the Dodd-Frank Act will have on us, the financial industry, and the economy
cannot be known until all such rules and regulations called for under the
Dodd-Frank Act have been finalized.



15










Certain
provisions of the Dodd-Frank Act that may impact our business include, but are
not limited to: the establishment of a fiduciary standard for broker-dealers,
the imposition of capital requirements on financial holding companies, and to a
lesser extent, greater oversight over derivatives trading and restrictions on
proprietary trading. Other regulatory changes and proposed changes concerning
municipal securities and the issuance of public debt may adversely impact our
business. These initiatives include changes to existing 'pay to play' rules for
brokers, dealers, and municipal securities dealers; expansion of disclosure,
suitability and pricing obligations for brokers, dealers and municipal
securities dealers; and changes in the definition of, and registration
requirements for, municipal advisers.



A number
of changes have been proposed to the rules and regulations that govern our
securities business, and other rules and regulations have been adopted, which
may result in changes in the way in which we conduct our business.
These
legislative and regulatory initiatives could require us to change certain of our
business practices, impose additional costs on us, limit the products that we
offer, result in a loss of revenue, limit our competitiveness or our ability to
pursue business opportunities, cause business disruptions, impact the value of
assets that we hold, or otherwise adversely affect our business, results of
operations, or financial condition. The long-term impact of these initiatives on
our business practices and revenues will depend upon the successful
implementation of our strategies and competitors' responses to such initiatives,
all of which are difficult to predict.



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
principal source of liquidity. These assets are financed primarily by our equity
capital, debentures to trusts, client credit balances, short-term bank loans,
proceeds from securities lending, customer deposits, and other payables. We
currently finance our client accounts and firm trading positions through
ordinary course borrowings at floating interest rates from various banks on a
demand basis and securities lending, with company-owned and client securities
pledged as collateral. Changes in securities market volumes, related client
borrowing demands, underwriting activity, and levels of securities inventory
affect the amount of our financing requirements.



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



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



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



16









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



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





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



We face
intense competition in our industry.



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



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



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



17










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



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



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



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



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



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, TWP, 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 European
subsidiaries, SN Ltd and TWPIL, are subject to similar limitations under
applicable laws in the United Kingdom.
Our
Canadian subsidiary, SN Canada, is subject to the regulatory supervision and
requirements of the Investment Industry Regulatory Organization of Canada
("IIROC").
Failure to
comply with the net capital rules could have material and adverse consequences,
such as:




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



18










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



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



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



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



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



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



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




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



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



19










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 could have disruptive effects on our business and may strain our resources.



Our growth
strategies have included, and will continue to include, the recruitment of
financial advisors and strategic acquisitions. Over the last few years, we have
completed several significant acquisitions. 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 have
strained, and may continue to strain, our management and administrative
resources. Costs or difficulties relating to such transactions, including
integration of financial advisors and other employees, products and services,
technology systems, accounting systems, and management controls, may be greater
than expected. Unless offset by a growth of revenues, the costs associated with
these investments will reduce our operating margins. In addition, because, as
noted above, financial professionals typically take their clients with them when
they leave, if key employees or other senior management personnel of the
businesses we have acquired determine that they do not wish to remain with our
company over the long term or at all, we would not inherit portions of the
client base of those businesses, which would reduce the value of those
acquisitions to us.



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



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



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



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



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



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



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


20










We may
experience losses associated with mortgage repurchases and indemnification
obligations.  



Through
Stifel Bank, in the normal course of business, we originate residential mortgage
loans and sell them to investors. We are subject to the inherent risk associated
with selling mortgage loans in the secondary market. We may be required to
repurchase mortgage loans that have been sold to investors in the event there
are breaches of certain representations and warranties contained within the
sales agreements. While we have yet to repurchase a loan sold to an investor, we
may be required to repurchase mortgage loans that were sold to investors in the
event that there was inadequate underwriting or fraud, or in the event that the
loans become delinquent shortly after they are originated. We also may be
required to indemnify certain purchasers and others against losses they incur in
the event of breaches of representations and warranties and in various other
circumstances, and the amount of such losses could exceed the repurchase amount
of the related loans. Consequently, we may be exposed to credit risk associated
with sold loans. There is no assurance that any such losses would not materially
and adversely affect our business, financial condition, and results of
operations.  



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 requirements, client
needs, and industry demands is critical for our business. Introduction 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
products and services that will satisfy their demands for convenience, as well
as to create additional efficiencies in our operations. Many of our competitors
have substantially greater resources to invest in technological improvements. We
cannot assure you that we will be able to effectively upgrade our systems,
implement new technology-driven products and services, or be successful in
marketing these products and services to our clients.



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



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



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



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



21










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



We may
suffer losses if our reputation is harmed.



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



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



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



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



We are
subject to risks 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 bylaws 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 OPEB litigation) and our approach to managing legal risk, see Item 3, "Legal
Proceedings."


22










 



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



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



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

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



Our
articles of incorporation and bylaws and Delaware law contain provisions that
are intended to deter abusive takeover tactics by making them unacceptably
expensive to prospective acquirors and to encourage prospective acquirors to
negotiate with our board of directors rather than to attempt a hostile takeover.
Delaware law also imposes some restrictions on mergers and other business
combinations between us and any holder of 15% or more of our outstanding common
stock. We believe these provisions protect our stockholders from coercive or
otherwise unfair takeover tactics by requiring potential acquirors to negotiate
with our board of directors and by providing our board of directors with more
time to assess any acquisition proposal. These provisions are not intended to
make our company immune from takeovers. However, these provisions apply even if
the offer may be considered beneficial by some stockholders and could delay or
prevent an acquisition that our board of directors determines is not in the best
interests of our company and our stockholders.   



ITEM 1B. 


UNRESOLVED
STAFF COMMENTS



None.



23











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, 2010. We lease or sublease all of these properties. All properties
are leased under operating leases. Such leases expire at various times through
2021. We have multiple sublease arrangements for approximately 40,000 square
feet of office space in San Francisco, California, the terms of which expire on
April 30, 2012.


	
		
		

		 
		
		

		 
		
		

		 
		
		

		 
		
		

		 
	
	
		
		


		Location
		
		

		 
		
		


		Approximate Square Footage
		
		

		 
		
		


		Use
	
	
		
		


		St. Louis, Missouri
		
		

		 
		
		


		127,000

		

		 

		

		 
		
		

		 
		
		


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

		

		 
	
	
		
		


		New York, New York
		
		

		 
		
		


		103,000

		

		 
		
		

		 
		
		


		Global Wealth Management and Institutional Group operations.
	
	
		
		


		Baltimore, Maryland
		
		

		 
		
		


		76,000

		

		 
		
		

		 
		
		


		Institutional Group operations and Administrative offices.

		

		 
	
	
		
		


		San Francisco, California
		
		

		 
		
		


		68,000
		
		

		 
		
		


		Global Wealth Management and Institutional Group operations.
	
	
		
		


		Florham Park, New Jersey
		
		

		 
		
		


		50,000

		

		 

		

		 
		
		

		 
		
		


		Global Wealth Management and Institutional Group operations.
	
	
		
		


		Toronto, Ontario
		
		

		 
		
		


		20,000
		
		

		 
		
		


		Institutional Group operations.
	



We also
maintain operations in 305 branch offices in various locations throughout the
United States and in certain foreign countries, primarily for our broker-dealer
business. Our Global Wealth Management segment leases 285 offices, which are
primarily concentrated in the Midwest and Mid-Atlantic regions with a growing
presence in the Northeast, Southeast, and Western United States. In addition,
Stifel Bank leases one location in the St. Louis area for its administrative
offices and operations. Our Institutional Group segment leases 19 offices in the
United States and certain foreign locations. We believe that, at the present
time, the space available to us in the facilities under our current leases and
co-location arrangements 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 Institutional Group 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.



24










ITEM 3. 


LEGAL
PROCEEDINGS



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



The
regulatory investigations include inquiries from the SEC and a state regulatory
authority relating to our role in investments made by five Southeastern
Wisconsin school districts (the "school districts") in transactions involving
collateralized debt obligations ("CDO"). We are fully cooperating with the SEC
and the state regulatory authority in these investigations and have provided
information and testimony.



We were
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, Stifel Nicolaus, Royal Bank of Canada Europe Ltd. ("RBC"),
and certain other RBC entities (collectively the "Defendants") by the school
districts and the individual trustees for other post-employment benefit ("OPEB")
trusts established by those school districts (collectively the "Plaintiffs").





The suit
arises out of purchases of certain CDO by the OPEB trusts. The RBC entities
structured and served as "arranger" for the CDO. We served as the placement
agent/broker in connection with the transactions.  The school districts each
formed trusts that made investments designed to address their OPEB liabilities. 
The total amount of the investments made by the OPEB trusts was $200.0 million.
Since the investments were made, we believe their value has declined
significantly and may ultimately result in a total loss for the OPEB trusts. 
The Plaintiffs have asserted 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 Depfa Bank, as the lender, is each of the OPEB trusts'
respective assets and the moral obligation of each school district. The legal
claims asserted include violation of the Wisconsin Securities Act, fraud, and
negligence. The lawsuit seeks equitable relief, unspecified compensatory
damages, treble damages, punitive damages, and attorney's fees and costs. The
Plaintiffs claim that the RBC entities and our company either made
misrepresentations or failed to disclose material facts in connection with the
sale of the CDO, and thus allegedly violated 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 denied the Defendants' motions to dismiss, and the
Defendants have responded to the allegations of the Second Amended Complaint,
denying the substantive allegations and asserting various affirmative defenses.
Stifel Nicolaus and the RBC entities have asserted cross-claims for indemnity
and contribution against each other. 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.



Prior to
the acquisition of TWPG, FINRA commenced an administrative proceeding against
TWP, a wholly owned broker-dealer subsidiary of TWPG, related to a transaction
undertaken by a former employee in which approximately $15.7 million of ARS were
sold from a TWPG account to the accounts of three customers. FINRA has alleged
that TWP violated various NASD and FINRA rules, as well as Section 10(b) of the
Securities Exchange Act and Rule 10b-5. TWP has filed an answer denying the
substantive allegations and asserting various affirmative defenses. TWP has
repurchased the ARS at issue from the customers at par. FINRA is seeking fines
and other relief against TWP and the former employee. TWP is defending the FINRA
proceeding vigorously.



ITEM 4. 


(Removed
and Reserved)


25










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 23, 2011, was $70.00. As of that date, our
common stock was held by approximately 15,400 shareholders. The following table
sets forth for the periods indicated the high and low trades for our common
stock:


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
	
	
		
		


		 
		
		


		High
		
		


		 
		
		


		Low
		
		


		 
		
		


		High
		
		


		 
		
		


		Low
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		First quarter
		
		


		$
		
		


		59.63
		
		


		 
		
		


		$
		
		


		49.60
		
		


		 
		
		


		$
		
		


		48.41
		
		


		 
		
		


		$
		
		


		29.13
		
		


		 
	
	
		
		


		Second quarter
		
		


		$
		
		


		59.51
		
		


		 
		
		


		$
		
		


		43.05
		
		


		 
		
		


		$
		
		


		52.33
		
		


		 
		
		


		$
		
		


		41.00
		
		


		 
	
	
		
		


		Third quarter
		
		


		$
		
		


		50.00
		
		


		 
		
		


		$
		
		


		42.68
		
		


		 
		
		


		$
		
		


		57.23
		
		


		 
		
		


		$
		
		


		43.43
		
		


		 
	
	
		
		


		Fourth quarter
		
		


		$
		
		


		63.13
		
		


		 
		
		


		$
		
		


		43.88
		
		


		 
		
		


		$
		
		


		59.54
		
		


		 
		
		


		$
		
		


		50.76
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



We did not
pay cash dividends during 2010 or 2009 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 our broker-dealer
subsidiaries and Stifel Bank.



Securities
Authorized for Issuance Under Equity Compensation Plans




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



Issuer Purchases of Equity Securities





There were
no unregistered sales of equity securities during the quarter ended December 31,
2010. 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, 2010.



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. On August 3,
2010, the Board authorized the repurchase of an additional 2,000,000 shares. At
December 31, 2010, the maximum number of shares that may yet be purchased under
this plan was
2,038,517.




26










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 year period
ended December 31, 2010. 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 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, 2005,
in our common stock, the Peer Group Index, the S&P 500 Index, and the AMEX
Securities Broker-Dealer Index, with reinvestment of dividends.


	
		
		


		 
		
		


		 
		
		


		2006
		
		


		 
		
		


		2007
		
		


		 
		
		


		2008
		
		


		 
		
		


		2009
		
		


		 
		
		


		2010
		
		


		 
	
	
		
		


		Stifel Financial Corp.
		
		


		 
		
		


		$
		
		


		104
		
		


		 
		
		


		$
		
		


		140
		
		


		 
		
		


		$
		
		


		183
		
		


		 
		
		


		$
		
		


		236
		
		


		 
		
		


		$
		
		


		248
		
		


		 
	
	
		
		


		Peer Group
		
		


		 
		
		


		$
		
		


		135
		
		


		 
		
		


		$
		
		


		132
		
		


		 
		
		


		$
		
		


		91
		
		


		 
		
		


		$
		
		


		122
		
		


		 
		
		


		$
		
		


		139
		
		


		 
	
	
		
		


		S&P 500 Index
		
		


		 
		
		


		$
		
		


		116
		
		


		 
		
		


		$
		
		


		122
		
		


		 
		
		


		$
		
		


		77
		
		


		 
		
		


		$
		
		


		97
		
		


		 
		
		


		$
		
		


		112
		
		


		 
	
	
		
		


		AMEX Securities Broker-Dealer Index
		
		


		 
		
		


		$
		
		


		123
		
		


		 
		
		


		$
		
		


		106
		
		


		 
		
		


		$
		
		


		39
		
		


		 
		
		


		$
		
		


		59
		
		


		 
		
		


		$
		
		


		62
		
		


		 
	





* Compound Annual Growth Rate


27










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


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Oppenheimer Holdings, Inc.
		
		


		 
		
		


		SWS Group, Inc.
		
		


		 
	
	
		
		


		Sanders Morris Harris Group Inc.
		
		


		 
		
		


		Stifel Financial Corp.
		
		


		 
	
	
		
		


		Raymond James Financial, Inc.
		
		


		 
		
		


		Piper Jaffray Companies
		
		


		 
	



 


28










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,
			
			


			 
		
		
			
			

			

			 
			
			


			 
			
			


			2010
			
			


			 
			
			


			2009
			
			


			 
			
			


			2008
			
			


			 
			
			


			2007
			
			


			 
			
			


			2006
			
			


			 
		
		
			
			

			

			Revenues:
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Principal transactions
			
			


			 
			
			


			$
			
			


			453,533
			
			


			 
			
			


			$ 
			
			


			458,188
			
			


			 
			
			


			$ 
			
			


			293,285
			
			


			 
			
			


			$
			
			


			139,248
			
			


			 
			
			


			$
			
			


			86,365
			
			


			 
		
		
			
			


			Commissions
			
			


			 
			
			


			 
			
			


			445,260
			
			


			 
			
			


			 
			
			


			345,520
			
			


			 
			
			


			 
			
			


			341,090
			
			


			 
			
			


			 
			
			


			315,514
			
			


			 
			
			


			 
			
			


			199,056
			
			


			 
		
		
			
			


			Investment banking
			
			


			 
			
			


			 
			
			


			218,104
			
			


			 
			
			


			 
			
			


			125,807
			
			


			 
			
			


			 
			
			


			83,710
			
			


			 
			
			


			 
			
			


			169,413
			
			


			 
			
			


			 
			
			


			82,856
			
			


			 
		
		
			
			


			Asset management and service fees
			
			


			 
			
			


			 
			
			


			193,159
			
			


			 
			
			


			 
			
			


			117,357
			
			


			 
			
			


			 
			
			


			122,773
			
			


			 
			
			


			 
			
			


			101,610
			
			


			 
			
			


			 
			
			


			57,713
			
			


			 
		
		
			
			


			Interest
			
			


			 
			
			


			 
			
			


			65,326
			
			


			 
			
			


			 
			
			


			46,860
			
			


			 
			
			


			 
			
			


			50,148
			
			


			 
			
			


			 
			
			


			59,071
			
			


			 
			
			


			 
			
			


			35,804
			
			


			 
		
		
			
			


			Other income/(loss)
			
			


			 
			
			


			 
			
			


			19,855
			
			


			 
			
			


			 
			
			


			9,138
			
			


			 
			
			


			 
			
			


			(2,159
			
			


			)
			
			


			 
			
			


			8,234
			
			


			 
			
			


			 
			
			


			9,594
			
			


			 
		
		
			
			


			Total revenues
			
			


			 
			
			


			 
			
			


			1,395,237
			
			


			 
			
			


			 
			
			


			1,102,870
			
			


			 
			
			


			 
			
			


			888,847
			
			


			 
			
			


			 
			
			


			793,090
			
			


			 
			
			


			 
			
			


			471,388
			
			


			 
		
		
			
			


			Interest expense
			
			


			 
			
			


			 
			
			


			13,211
			
			


			 
			
			


			 
			
			


			12,234
			
			


			 
			
			


			 
			
			


			18,510
			
			


			 
			
			


			 
			
			


			30,025
			
			


			 
			
			


			 
			
			


			19,581
			
			


			 
		
		
			
			


			Net revenues
			
			


			 
			
			


			 
			
			


			1,382,026
			
			


			 
			
			


			 
			
			


			1,090,636
			
			


			 
			
			


			 
			
			


			870,337
			
			


			 
			
			


			 
			
			


			763,065
			
			


			 
			
			


			 
			
			


			451,807
			
			


			 
		
		
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			

			

			Non-interest expenses:
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Compensation and benefits
			
			


			 
			
			


			 
			
			


			1,056,202
			
			


			 
			
			


			 
			
			


			718,115
			
			


			 
			
			


			 
			
			


			582,778
			
			


			 
			
			


			 
			
			


			543,021
			
			


			 
			
			


			 
			
			


			329,703
			
			


			 
		
		
			
			


			Occupancy and equipment rental
			
			


			 
			
			


			 
			
			


			115,742
			
			


			 
			
			


			 
			
			


			89,741
			
			


			 
			
			


			 
			
			


			67,984
			
			


			 
			
			


			 
			
			


			57,796
			
			


			 
			
			


			 
			
			


			30,751
			
			


			 
		
		
			
			


			Communications and office supplies
			
			


			 
			
			


			 
			
			


			69,929
			
			


			 
			
			


			 
			
			


			54,745
			
			


			 
			
			


			 
			
			


			45,621
			
			


			 
			
			


			 
			
			


			42,355
			
			


			 
			
			


			 
			
			


			26,666
			
			


			 
		
		
			
			


			Commissions and floor brokerage
			
			


			 
			
			


			 
			
			


			26,301
			
			


			 
			
			


			 
			
			


			23,416
			
			


			 
			
			


			 
			
			


			13,287
			
			


			 
			
			


			 
			
			


			9,921
			
			


			 
			
			


			 
			
			


			6,388
			
			


			 
		
		
			
			


			Other operating expenses
			
			


			 
			
			


			 
			
			


			114,081
			
			


			 
			
			


			 
			
			


			84,205
			
			


			 
			
			


			 
			
			


			68,898
			
			


			 
			
			


			 
			
			


			56,126
			
			


			 
			
			


			 
			
			


			31,930
			
			


			 
		
		
			
			


			Total non-interest expenses
			
			


			 
			
			


			 
			
			


			1,382,255
			
			


			 
			
			


			 
			
			


			970,222
			
			


			 
			
			


			 
			
			


			778,568
			
			


			 
			
			


			 
			
			


			709,219
			
			


			 
			
			


			 
			
			


			425,438
			
			


			 
		
		
			
			

			

			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			

			

			Income before income tax expense
			
			


			 
			
			


			 
			
			


			(229
			
			


			) 
			
			


			 
			
			


			120,414
			
			


			 
			
			


			 
			
			


			91,769
			
			


			 
			
			


			 
			
			


			53,846
			
			


			 
			
			


			 
			
			


			26,369
			
			


			 
		
		
			
			


			Provision for income taxes
			
			


			 
			
			


			 
			
			


			(2,136
			
			


			) 
			
			


			 
			
			


			44,616
			
			


			 
			
			


			 
			
			


			36,267
			
			


			 
			
			


			 
			
			


			21,676
			
			


			 
			
			


			 
			
			


			10,938
			
			


			 
		
		
			
			

			

			Net income
			
			


			 
			
			


			$
			
			


			1,907
			
			


			 
			
			


			$
			
			


			75,798
			
			


			 
			
			


			$
			
			


			55,502
			
			


			 
			
			


			$
			
			


			32,170
			
			


			 
			
			


			$
			
			


			15,431
			
			


			 
		
		
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			

			

			Earnings per common share:
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Basic
			
			


			 
			
			


			$
			
			


			0.06
			
			


			 
			
			


			$
			
			


			2.68
			
			


			 
			
			


			$
			
			


			2.31
			
			


			 
			
			


			$
			
			


			1.48
			
			


			 
			
			


			$
			
			


			0.89
			
			


			 
		
		
			
			


			Diluted
			
			


			 
			
			


			$
			
			


			0.05
			
			


			 
			
			


			$
			
			


			2.35
			
			


			 
			
			


			$
			
			


			1.98
			
			


			 
			
			


			$
			
			


			1.25
			
			


			 
			
			


			$
			
			


			0.74
			
			


			 
		
		
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			

			

			Weighted average number of common shares outstanding:
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Basic
			
			


			 
			
			


			 
			
			


			32,482
			
			


			 
			
			


			 
			
			


			28,297
			
			


			 
			
			


			 
			
			


			24,069
			
			


			 
			
			


			 
			
			


			21,754
			
			


			 
			
			


			 
			
			


			17,269
			
			


			 
		
		
			
			


			Diluted
			
			


			 
			
			


			 
			
			


			38,448
			
			


			 
			
			


			 
			
			


			32,294
			
			


			 
			
			


			 
			
			


			28,073
			
			


			 
			
			


			 
			
			


			25,723
			
			


			 
			
			


			 
			
			


			20,863
			
			


			 
		
		
			
			

			

			Financial Condition
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Total assets
			
			


			 
			
			


			$
			
			


			4,218,030
			
			


			 
			
			


			$
			
			


			3,167,356
			
			


			 
			
			


			$
			
			


			1,558,145
			
			


			 
			
			


			$
			
			


			1,499,440
			
			


			 
			
			


			$
			
			


			1,084,774
			
			


			 
		
		
			
			


			Long-term obligations
			
			


			 
			
			


			$
			
			


			90,741
			
			


			 
			
			


			$
			
			


			101,979
			
			


			 
			
			


			$
			
			


			106,860
			
			


			 
			
			


			$
			
			


			124,242
			
			


			 
			
			


			$
			
			


			98,379
			
			


			 
		
		
			
			


			Shareholders' equity
			
			


			 
			
			


			$
			
			


			1,258,798
			
			


			 
			
			


			$
			
			


			873,446
			
			


			 
			
			


			$
			
			


			593,185
			
			


			 
			
			


			$
			
			


			424,637
			
			


			 
			
			


			$
			
			


			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; 5) the acquisition of the UBS
Acquired Locations during the third and fourth quarters of 2009; 6) the merger
with TWPG on July 1, 2010; and 7) the acceleration of our deferred compensation
expense during 2010 as a result of the plan modification. 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.


29










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, 2010.




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



Executive
Summary



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



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





We plan to
maintain our focus on revenue growth with a continued appreciation for the
development of quality client relationships. Within our private client business,
our efforts will be focused on recruiting experienced financial advisors with
established client relationships. Within our capital markets business, our focus
continues to be on providing quality client management and product
diversification. In executing our growth strategy, we will continue to seek out
opportunities that allow us to take advantage of the consolidation among
middle-market firms, whereby allowing us to increase market share in our private
client and institutional group businesses.



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



On
July 1,
2010, we acquired Thomas Weisel Partners Group, Inc. ("TWPG"),
an investment bank focused principally on the growth sectors of the economy,
which generated revenues from three principal sources: investment banking,
brokerage, and asset management. The investment banking group is comprised of
two primary categories of services: corporate finance and strategic advisory.
The brokerage group provided equity sales and trading services to institutional
investors and offered brokerage and advisory services to high net worth
individuals and corporate clients. The asset management group consists of:
private investment funds, public equity investment products, and distribution
management. We believe the combination of our company and TWPG will allow us to
realize the benefits of the firms' highly complementary investment banking and
research platforms; accelerate our investment banking business growth by
expanding our presence in key growth areas of the global economy, particularly
in Technology, Healthcare, and Natural Resources; raise our profile within the
venture capital community, where TWPG maintains key relationships; enhance our
mergers and acquisitions advisory services and equities lead manager
credentials; and realize benefits from the expansion of our west coast market
presence and the expansion of our international capabilities through the
operations of SN Canada.



The
employees of the investment banking, research, and institutional brokerage
businesses of Thomas Weisel Partners, LLC ("TWP"), a wholly owned subsidiary of
TWPG, were transitioned into Stifel Nicolaus during the third quarter of 2010.
TWP will remain a wholly owned broker-dealer subsidiary of our company.



30










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 Institutional Group segment, and the continued
expansion of our Global Wealth Management segment. Despite the significant
volatility in the market during the first half of 2010, we began to see signs of
improvement in the capital markets during the third and fourth quarters of 2010.
At December 31, 2010, the key indicators of the markets' performance, the Dow
Jones Industrial Average, the NASDAQ, and the S&P 500 closed 11.0%, 16.9%, and
12.8%, respectively, higher than their December 31, 2009 closing prices.





Results
for the year ended December 31, 2010



For the
year ended December 31, 2010, our net revenues increased 26.7% to a record $1.4
billion compared to $1.1 billion for the prior year, which represents our
fifteenth consecutive annual increase in net revenues. Net income decreased
97.5% to $1.9 million for the year ended December 31, 2010, compared to $75.8
million in 2009. Net income for 2010 included several significant expense items
(after-tax): (1)
$106.4
million of deferred compensation expense due to
the
modification of our deferred compensation plan, and (2) merger-related expenses
of $16.5 million related to the merger with TWPG.



Our
revenue growth was primarily derived from improved equity market conditions, the
acquisition of the UBS Acquired Locations at the end of 2009, and the recently
completed merger with TWPG. The increase in financial advisors, client assets,
and productivity and the improving equity capital markets have contributed to
the increase in our commissions and asset management fee revenues. Principal
transactions revenues, while positively impacted by the improved equity market
conditions, remained relatively consistent with 2009 as challenging fixed income
market conditions negatively impacted our principal transaction revenues. Our
fixed income institutional brokerage business was negatively impacted by the
challenging fixed income market conditions during 2010, which contributed to
lower trading volumes and the tightening of corporate bond spreads. The improved
market conditions and our merger with TWPG have contributed to the improvement
in our investment banking revenues from 2009. Our business does not produce
predictable earnings and is affected by many risk factors, such as the global
economic and credit slowdown, among others.



While we
have experienced an increase in market share due to market upheaval, we have
incurred additional expenses related to increased SIPC assessments, higher FDIC
premiums, including special assessments, increased litigation costs, 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 do so in
the future if our revenue growth does not absorb the additional costs of
operating in the current environment. In addition to our increased operating
costs resulting from organic growth, we incurred significant costs related to
the acquisition of TWPG and a significant increase in compensation and benefits
expense resulting from the acceleration of our deferred compensation plan, which
aligned the requirements for vesting with
that of the TWPG deferred compensation plan.



External
Factors Impacting Our Business




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



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.





As a
participant in the financial services industry, we are subject to complicated
and extensive regulation of our business. The recent economic and political
environment has led to legislative and regulatory initiatives, both enacted and
proposed, that could substantially intensify the regulation of the financial
services industry and may significantly impact us. This increased focus has
resulted in the Dodd-Frank Act, which was signed into law during the third
quarter of 2010. The Dodd-Frank Act will significantly restructure and increase
regulation in the financial services industry, which could increase our cost of
doing business, change certain business practices, and alter the competitive
landscape.



31










RESULTS
OF OPERATIONS



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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended December 31,
		
		


		 
		
		


		Percentage



		Change  
		
		


		 
		
		


		 
		
		


		As a Percentage of



		Net Revenues



		for the Year Ended



		December 31,
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2010 vs. 2009
		
		


		 
		
		


		2009 vs. 2008
		
		


		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
	
	
		
		

		

		Revenues:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Principal transactions
		
		


		 
		
		


		$
		
		


		453,533
		
		


		 
		
		


		$
		
		


		458,188
		
		


		 
		
		


		$
		
		


		293,285
		
		


		 
		
		


		(1.0)
		
		


		%
		
		


		56.2
		
		


		%
		
		


		 
		
		


		32.8
		
		


		%
		
		


		42.0
		
		


		%
		
		


		33.7
		
		


		%
	
	
		
		


		Commissions
		
		


		 
		
		


		 
		
		


		445,260
		
		


		 
		
		


		 
		
		


		345,520
		
		


		 
		
		


		 
		
		


		341,090
		
		


		 
		
		


		28.9
		
		


		 
		
		


		1.3
		
		


		 
		
		


		 
		
		


		32.2
		
		


		 
		
		


		31.7
		
		


		 
		
		


		39.2
		
		


		 
	
	
		
		


		Investment banking
		
		


		 
		
		


		 
		
		


		218,104
		
		


		 
		
		


		 
		
		


		125,807
		
		


		 
		
		


		 
		
		


		83,710
		
		


		 
		
		


		73.4
		
		


		 
		
		


		50.3
		
		


		 
		
		


		 
		
		


		15.8
		
		


		 
		
		


		11.5
		
		


		 
		
		


		9.6
		
		


		 
	
	
		
		


		Asset management and service fees
		
		


		 
		
		


		 
		
		


		193,159
		
		


		 
		
		


		 
		
		


		117,357
		
		


		 
		
		


		 
		
		


		122,773
		
		


		 
		
		


		64.6
		
		


		 
		
		


		(4.4
		
		


		)
		
		


		 
		
		


		14.0
		
		


		 
		
		


		10.8
		
		


		 
		
		


		14.1
		
		


		 
	
	
		
		


		Interest
		
		


		 
		
		


		 
		
		


		65,326
		
		


		 
		
		


		 
		
		


		46,860
		
		


		 
		
		


		 
		
		


		50,148
		
		


		 
		
		


		39.4
		
		


		 
		
		


		(6.6
		
		


		)
		
		


		 
		
		


		4.7
		
		


		 
		
		


		4.3
		
		


		 
		
		


		5.7
		
		


		 
	
	
		
		


		Other income/(loss)
		
		


		 
		
		


		 
		
		


		19,855
		
		


		 
		
		


		 
		
		


		9,138
		
		


		 
		
		


		 
		
		


		(2,159
		
		


		) 
		
		


		117.3
		
		


		 
		
		


		*
		
		


		 
		
		


		 
		
		


		1.5
		
		


		 
		
		


		0.8
		
		


		 
		
		


		(0.2
		
		


		)
	
	
		
		

		

		Total revenues
		
		


		 
		
		


		 
		
		


		1,395,237
		
		


		 
		
		


		 
		
		


		1,102,870
		
		


		 
		
		


		 
		
		


		888,847
		
		


		 
		
		


		26.5
		
		


		 
		
		


		24.1
		
		


		 
		
		


		 
		
		


		101.0
		
		


		 
		
		


		101.1
		
		


		 
		
		


		102.1
		
		


		 
	
	
		
		


		Interest expense
		
		


		 
		
		


		 
		
		


		13,211
		
		


		 
		
		


		 
		
		


		12,234
		
		


		 
		
		


		 
		
		


		18,510
		
		


		 
		
		


		8.0
		
		


		 
		
		


		(33.9
		
		


		)
		
		


		 
		
		


		1.0
		
		


		 
		
		


		1.1
		
		


		 
		
		


		2.1
		
		


		 
	
	
		
		

		

		Net revenues
		
		


		 
		
		


		 
		
		


		1,382,026
		
		


		 
		
		


		 
		
		


		1,090,636
		
		


		 
		
		


		 
		
		


		870,337
		
		


		 
		
		


		26.7
		
		


		 
		
		


		25.3
		
		


		 
		
		


		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Non-interest expenses:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Compensation and benefits
		
		


		 
		
		


		 
		
		


		1,056,202
		
		


		 
		
		


		 
		
		


		718,115
		
		


		 
		
		


		 
		
		


		582,778
		
		


		 
		
		


		47.1
		
		


		 
		
		


		23.2
		
		


		 
		
		


		 
		
		


		76.4
		
		


		 
		
		


		65.8
		
		


		 
		
		


		67.0
		
		


		 
	
	
		
		


		Occupancy and equipment rental
		
		


		 
		
		


		 
		
		


		115,742
		
		


		 
		
		


		 
		
		


		89,741
		
		


		 
		
		


		 
		
		


		67,984
		
		


		 
		
		


		29.0
		
		


		 
		
		


		32.0
		
		


		 
		
		


		 
		
		


		8.4
		
		


		 
		
		


		8.2
		
		


		 
		
		


		7.8
		
		


		 
	
	
		
		


		Communication and office supplies
		
		


		 
		
		


		 
		
		


		69,929
		
		


		 
		
		


		 
		
		


		54,745
		
		


		 
		
		


		 
		
		


		45,621
		
		


		 
		
		


		27.7
		
		


		 
		
		


		20.0
		
		


		 
		
		


		 
		
		


		5.1
		
		


		 
		
		


		5.0
		
		


		 
		
		


		5.2
		
		


		 
	
	
		
		


		Commissions and floor brokerage
		
		


		 
		
		


		 
		
		


		26,301
		
		


		 
		
		


		 
		
		


		23,416
		
		


		 
		
		


		 
		
		


		13,287
		
		


		 
		
		


		12.3
		
		


		 
		
		


		76.2
		
		


		 
		
		


		 
		
		


		1.9
		
		


		 
		
		


		2.2
		
		


		 
		
		


		1.5
		
		


		 
	
	
		
		


		Other operating expenses
		
		


		 
		
		


		 
		
		


		114,081
		
		


		 
		
		


		 
		
		


		84,205
		
		


		 
		
		


		 
		
		


		68,898
		
		


		 
		
		


		35.5
		
		


		 
		
		


		22.2
		
		


		 
		
		


		 
		
		


		8.3
		
		


		 
		
		


		7.8
		
		


		 
		
		


		7.9
		
		


		 
	
	
		
		

		

		Total non-interest expenses
		
		


		 
		
		


		 
		
		


		1,382,255
		
		


		 
		
		


		 
		
		


		970,222
		
		


		 
		
		


		 
		
		


		778,568
		
		


		 
		
		


		42.5
		
		


		 
		
		


		24.6
		
		


		 
		
		


		 
		
		


		100.1
		
		


		 
		
		


		89.0
		
		


		 
		
		


		89.4
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Income before income taxes
		
		


		 
		
		


		 
		
		


		(229
		
		


		)
		
		


		 
		
		


		120,414
		
		


		 
		
		


		 
		
		


		91,769
		
		


		 
		
		


		(100.0
		
		


		) 
		
		


		31.2
		
		


		 
		
		


		 
		
		


		(0.1
		
		


		)
		
		


		11.0
		
		


		 
		
		


		10.6
		
		


		 
	
	
		
		


		Provision for income taxes
		
		


		 
		
		


		 
		
		


		(2,136
		
		


		)
		
		


		 
		
		


		44,616
		
		


		 
		
		


		 
		
		


		36,267
		
		


		 
		
		


		(104.8
		
		


		) 
		
		


		23.0
		
		


		 
		
		


		 
		
		


		(0.2
		
		


		) 
		
		


		4.1
		
		


		 
		
		


		4.2
		
		


		 
	
	
		
		

		

		Net income
		
		


		 
		
		


		$
		
		


		1,907
		
		


		 
		
		


		$
		
		


		75,798
		
		


		 
		
		


		$
		
		


		55,502
		
		


		 
		
		


		(97.5)
		
		


		%
		
		


		36.6
		
		


		%
		
		


		 
		
		


		0.1
		
		


		%
		
		


		6.9
		
		


		%
		
		


		6.4
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		* Percentage not meaningful.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



For the
year ended December 31, 2010, our net revenues increased 26.7% to a record $1.4
billion compared to $1.1 billion for the prior year, which represents our
fifteenth consecutive annual increase in net revenues. Net income decreased
97.5% to $1.9 million for the year ended December 31, 2010, compared to $75.8
million in 2009. Net income for 2010 included several significant expense items
(after-tax): (1)
$106.4
million of deferred compensation expense due to
the
modification of our deferred compensation plan, and (2) merger-related expenses
of $16.5 million related to the merger with TWPG.



32










NET
REVENUES



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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended December 31,  
		
		


		 
		
		


		Percentage Change
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2010 vs. 2009
		
		


		 
		
		


		2009 vs. 2008
		
		


		 
	
	
		
		

		

		Revenues:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Principal transactions
		
		


		 
		
		


		$
		
		


		453,533
		
		


		 
		
		


		$
		
		


		458,188
		
		


		 
		
		


		$
		
		


		293,285
		
		


		 
		
		


		 
		
		


		(1.0)
		
		


		%
		
		


		 
		
		


		56.2
		
		


		%
	
	
		
		


		Commissions
		
		


		 
		
		


		 
		
		


		445,260
		
		


		 
		
		


		 
		
		


		345,520
		
		


		 
		
		


		 
		
		


		341,090
		
		


		 
		
		


		 
		
		


		28.9
		
		


		 
		
		


		 
		
		


		1.3
		
		


		 
	
	
		
		


		Investment banking:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Capital raising
		
		


		 
		
		


		 
		
		


		135,898
		
		


		 
		
		


		 
		
		


		76,563
		
		


		 
		
		


		 
		
		


		45,205
		
		


		 
		
		


		 
		
		


		77.5
		
		


		 
		
		


		 
		
		


		69.4
		
		


		 
	
	
		
		


		Advisory
		
		


		 
		
		


		 
		
		


		82,206
		
		


		 
		
		


		 
		
		


		49,244
		
		


		 
		
		


		 
		
		


		38,505
		
		


		 
		
		


		 
		
		


		66.9
		
		


		 
		
		


		 
		
		


		27.9
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		218,104
		
		


		 
		
		


		 
		
		


		125,807
		
		


		 
		
		


		 
		
		


		83,710
		
		


		 
		
		


		 
		
		


		73.4
		
		


		 
		
		


		 
		
		


		50.3
		
		


		 
	
	
		
		


		Asset management and service fees
		
		


		 
		
		


		 
		
		


		193,159
		
		


		 
		
		


		 
		
		


		117,357
		
		


		 
		
		


		 
		
		


		122,773
		
		


		 
		
		


		 
		
		


		64.6
		
		


		 
		
		


		 
		
		


		(4.4
		
		


		)
	
	
		
		


		Net interest
		
		


		 
		
		


		 
		
		


		52,115
		
		


		 
		
		


		 
		
		


		34,626
		
		


		 
		
		


		 
		
		


		31,638
		
		


		 
		
		


		 
		
		


		50.5
		
		


		 
		
		


		 
		
		


		9.4
		
		


		 
	
	
		
		


		Other income/(loss)
		
		


		 
		
		


		 
		
		


		19,855
		
		


		 
		
		


		 
		
		


		9,138
		
		


		 
		
		


		 
		
		


		(2,159
		
		


		) 
		
		


		 
		
		


		117.3
		
		


		 
		
		


		 
		
		


		*
		
		


		 
	
	
		
		

		

		Total net revenues
		
		


		 
		
		


		$ 
		
		


		1,382,026
		
		


		 
		
		


		$ 
		
		


		1,090,636
		
		


		 
		
		


		$
		
		


		870,337
		
		


		 
		
		


		 
		
		


		26.7
		
		


		%
		
		


		 
		
		


		25.3
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		*     Percentage is not meaningful.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	


Year Ended
December 31, 2010 Compared With Year Ended December 31, 2009



Except as
noted in the following discussion of variances, 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 Institutional Group segment, and the
acquisitions of the UBS Acquired Locations during the third and fourth quarters
of 2009 and TWPG on July 1, 2010. The results of operations for the UBS Acquired
Locations are included in our results prospectively from the date of their
respective acquisitions. For the year ended December 31, 2010, the acquisition
generated net revenues of $111.4 million compared to $27.1 million during 2009.
The prior year revenues of the UBS Acquired Locations were generated from the
date of acquisition through the end of the year. The investment banking,
research, and institutional brokerage businesses of TWPG were integrated with
Stifel Nicolaus immediately after the merger; therefore, the revenues, expenses,
and net income of the integrated businesses are not distinguishable within the
results of our company.




Principal transactions
- For the year ended December 31, 2010, principal transactions revenues
decreased 1.0% to $453.5 million from $458.2 million in 2009. The growth of our
company, both organically and through acquisitions, has been negatively impacted
by the challenging fixed income market conditions that existed during most of
2010, which significantly impacted the flow in our fixed income business. The
decline in principal transactions from 2009 is primarily attributable to
decreases in revenue from corporate bonds and mortgage-backed securities.






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



For the
year ended December 31, 2010, commission revenues increased 28.9% to $445.3
million from $345.5 million in the prior year. The increase is primarily
attributable to an increase in the number of financial advisors, client assets,
and higher productivity.  




Investment banking - 

Investment
banking revenues include: (i) capital-raising revenues representing fees earned
from the underwriting of debt and equity securities, (ii) sales credits, and
(iii) 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, 2010, investment banking revenues increased $92.3
million, or 73.4%, to $218.1 million from $125.8 million in 2009. The increase
was primarily attributable to our acquisition of TWPG on July 1, 2010, and
improved equity markets during the second half of 2010.



33










For the
year ended December 31, 2010, capital-raising revenues increased $59.3 million,
or 77.5%, to $135.9 million from $76.6 million in 2009. For the year ended
December 31, 2010, equity capital-raising revenues increased 76.2% to $92.6
million from $52.6 million in 2009. For the year ended December 31, 2010, fixed
income capital-raising revenues increased 34.8% to $26.8 million from $19.9
million in 2009.  



For the
year ended December 31, 2010, strategic advisory fees increased 66.9% to $82.2
million from $49.2 million in the prior year. The increase is primarily
attributable to an increase in the number of completed equity transactions and
the aggregate transaction value from the prior year.  




Asset management and service fees -
Asset management and service fees include fees for asset-based financial
services provided to individuals and institutional clients, fees from investment
partnerships we manage, and fees we earn from the management of equity
distributions we receive from our clients. Asset management and service 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, 2010, asset management and service fee revenues
increased 64.6% to $193.2 million from $117.4 million in 2009. The increase is
primarily a result of an increase in the value of assets in fee-based accounts,
the number of managed accounts during 2010, and the impact of the addition of
the TWPG asset management business.  During the year ended December 31, 2010, we
experienced a reduction in fees for money-fund balances due to the waiving of
fees by certain fund managers of approximately $50.0 million compared to
approximately $30.0 million in the prior year. 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, 2010, other income increased $10.8 million to
$19.9 million from $9.1 million in 2009. The increase is primarily attributable
to an increase in investment gains on our private equity investments, which were
acquired from TWPG, of $4.8 million and the recognition of a $2.1

million gain on the conversion of our seat membership on the Chicago Board
Options Exchange to shares in conjunction with its initial public offering
during the second quarter of 2010 and an increase in mortgage fees due to the
increase in loan originations at Stifel Bank.  



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



Except as
noted in the following discussion of variances, 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 Acquired Locations
acquisition during the third and fourth quarters of 2009.
The results of operations for the UBS Acquired Locations are included in our
results prospectively from the date of their respective conversion. For the year
ended December 31, 2009, these business acquisitions generated net revenues of
$23.0 million and $27.1 million, respectively.




Principal transactions
- For the year ended December 31, 2009, principal transactions revenue increased
56.2% to $458.2 million from $293.3 million in 2008. The increase was primarily
attributable to increased principal transactions, primarily in corporate debt,
over-the-counter ("OTC") equity, mortgage-backed bonds, and municipal debt as a
result of turbulent markets and customers returning to traditional fixed income
products.




Commissions -  
For the
year ended December 31, 2009, commission revenues increased 1.3% to $345.5
million from $341.1 million 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 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 was offset by a decrease in
trading volumes, as customers returned to traditional fixed income products.




Investment banking - 

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




Capital-raising revenues increased 69.4% to $76.6 million for the year ended
December 31, 2009, from $45.2 million 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 prior year.  



34










During the
second half of 2009, capital market conditions continued to build upon the
improvement that began in the second quarter for both equity and fixed income,
and we raised capital for our clients in a number of successful corporate and
public finance underwritings. The significant rebound in equity and fixed income
financings during the second half of 2009 was offset by the challenging market
conditions that began during the second half of 2008 and continued into the
first half of 2009.  



Strategic
advisory fees increased 27.9% to $49.2 million for the year ended December 31,
2009, from $38.5 million in 2008. The increase is primarily attributable to an
increase in the number of completed equity transactions and the aggregate
transaction value over the prior year.  




Asset management and service fees -  
For the
year ended December 31, 2009, asset management and service fee revenues
decreased 4.4% to $117.4 million from $122.8 million in 2008. The decrease was
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 $11.3 million to $9.1
million from a loss of $2.2 million in 2008. The increase was 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.



35










NET
INTEREST INCOME



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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended
	
	
		
		

		

		 
		
		


		 
		
		


		December 31, 2010
		
		


		 
		
		


		December 31, 2009
		
		


		 
		
		


		December 31, 2008
	
	
		
		

		

		 
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Interest Income/ Expense
		
		


		 
		
		


		Average Interest Rate
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Interest Income/ Expense
		
		


		 
		
		


		Average Interest Rate
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Interest Income/ Expense
		
		


		 
		
		


		Average Interest Rate
	
	
		
		

		

		Interest-earning assets:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Margin balances (Stifel Nicolaus)
		
		


		 
		
		


		$
		
		


		385,040
		
		


		 
		
		


		$
		
		


		16,532
		
		


		 
		
		


		4.29
		
		


		%
		
		


		 
		
		


		$
		
		


		290,043
		
		


		 
		
		


		$
		
		


		12,499
		
		


		 
		
		


		4.31
		
		


		%
		
		


		 
		
		


		$
		
		


		382,536
		
		


		 
		
		


		$
		
		


		20,930
		
		


		 
		
		


		5.47
		
		


		%
	
	
		
		


		Interest-earning assets (Stifel Bank) *
		
		


		 
		
		


		 
		
		


		1,293,339
		
		


		 
		
		


		 
		
		


		35,146
		
		


		 
		
		


		2.72
		
		


		%
		
		


		 
		
		

		 
		
		


		687,232
		
		


		 
		
		


		 
		
		


		20,283
		
		


		 
		
		


		2.95
		
		


		%
		
		


		 
		
		


		 
		
		


		273,893
		
		


		 
		
		


		 
		
		


		15,253
		
		


		 
		
		


		5.57
		
		


		%
	
	
		
		


		Stock borrow (Stifel Nicolaus)
		
		


		 
		
		


		 
		
		


		78,313
		
		


		 
		
		


		 
		
		


		22
		
		


		 
		
		


		0.03
		
		


		%
		
		


		 
		
		

		 
		
		


		32,588
		
		


		 
		
		


		 
		
		


		43
		
		


		 
		
		


		0.13
		
		


		%
		
		


		 
		
		

		 
		
		


		61,097
		
		


		 
		
		


		 
		
		


		733
		
		


		 
		
		


		1.20
		
		


		%
	
	
		
		


		Other (Stifel Nicolaus)
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		13,626
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		14,035
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		13,232
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total interest revenue
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		65,326
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		46,860
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		$
		
		


		50,148
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Interest-bearing liabilities:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Short-term borrowings (Stifel Nicolaus)
		
		


		 
		
		


		$ 
		
		


		108,784
		
		


		 
		
		


		$
		
		


		1,102
		
		


		 
		
		


		1.01
		
		


		%
		
		


		 
		
		


		$
		
		


		107,383
		
		


		 
		
		


		$
		
		


		1,065
		
		


		 
		
		


		0.99
		
		


		%
		
		


		 
		
		


		$
		
		


		132,660
		
		


		 
		
		


		$
		
		


		3,021
		
		


		 
		
		


		2.28
		
		


		%
	
	
		
		


		Interest-bearing liabilities (Stifel Bank) *
		
		


		 
		
		

		 
		
		


		1,191,747
		
		


		 
		
		


		 
		
		


		5,188
		
		


		 
		
		


		0.44
		
		


		% 
		
		


		 
		
		

		 
		
		


		626,754
		
		


		 
		
		


		 
		
		


		4,649
		
		


		 
		
		


		0.74
		
		


		%
		
		


		 
		
		

		 
		
		


		229,205
		
		


		 
		
		


		 
		
		


		5,434
		
		


		 
		
		


		2.37
		
		


		%
	
	
		
		


		Stock loan (Stifel Nicolaus)
		
		


		 
		
		

		 
		
		


		69,507
		
		


		 
		
		


		 
		
		


		1,071
		
		


		 
		
		


		1.54
		
		


		%
		
		


		 
		
		

		 
		
		


		53,110
		
		


		 
		
		


		 
		
		


		570
		
		


		 
		
		


		1.07
		
		


		%
		
		


		 
		
		

		 
		
		


		105,424
		
		


		 
		
		


		 
		
		


		2,608
		
		


		 
		
		


		2.47
		
		


		%
	
	
		
		


		Interest-bearing liabilities (Capital Trusts)
		
		


		 
		
		

		 
		
		


		82,500
		
		


		 
		
		


		 
		
		


		5,077
		
		


		 
		
		


		6.15
		
		


		%
		
		


		 
		
		

		 
		
		


		82,500
		
		


		 
		
		


		 
		
		


		5,488
		
		


		 
		
		


		6.65
		
		


		%
		
		


		 
		
		

		 
		
		


		93,019
		
		


		 
		
		


		 
		
		


		6,233
		
		


		 
		
		


		6.70
		
		


		%
	
	
		
		


		Other (Stifel Nicolaus)
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		773
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		462
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		1,214
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total interest expense
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$ 
		
		


		13,211
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$ 
		
		


		12,234
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		18,510
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Net interest income
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		52,115
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		34,626
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		31,638
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



* 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, 2010 Compared With Year Ended December 31, 2009



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, 2010, net interest income
increased 50.5% to $52.1 million from $34.6 million in 2009.



For the
year ended December 31, 2010, interest revenue increased 39.4%, or $18.4
million, to $65.3 million from $46.9 million in 2009, principally as a result of
a $14.9 million increase in interest revenue generated from the interest-earning
assets of Stifel Bank and a $4.0 million increase in interest revenue from
customer margin borrowing. The average interest-earning assets of Stifel Bank
increased to $1.3 billion during the year ended December 31, 2010, compared to $687.2
million in 2009 at weighted average interest rates of 2.72% and
2.95%,
respectively. The average margin balances of Stifel Nicolaus increased to $385.0
million during the year ended December 31, 2010, compared to $290.0 million in
2009 at weighted average interest rates of 4.29% and
4.31%,
respectively.



For the
year ended December 31, 2010, interest expense increased 8.0% to $13.2 million
from $12.2 million in 2009. See "Net Interest Income" table above for more
details.



36










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



Net
interest income -
For the year ended December 31, 2009, net interest income increased 9.4% to
$34.6 million from $31.6 million 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 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 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 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 prior year. The decrease was 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.




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
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2010 vs. 2009
		
		


		 
		
		


		2009 vs. 2008
		
		


		 
	
	
		
		

		

		Non-interest expenses:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Compensation and benefits
		
		


		 
		
		


		$
		
		


		1,056,202
		
		


		 
		
		


		$
		
		


		718,115
		
		


		 
		
		


		$
		
		


		582,778
		
		


		 
		
		


		 
		
		


		47.1
		
		


		%
		
		


		 
		
		


		23.2
		
		


		%
	
	
		
		


		Occupancy and equipment rental
		
		


		 
		
		


		 
		
		


		115,742
		
		


		 
		
		


		 
		
		


		89,741
		
		


		 
		
		


		 
		
		


		67,984
		
		


		 
		
		


		 
		
		


		29.0
		
		


		 
		
		


		 
		
		


		32.0
		
		


		 
	
	
		
		


		Communications and office supplies
		
		


		 
		
		


		 
		
		


		69,929
		
		


		 
		
		


		 
		
		


		54,745
		
		


		 
		
		


		 
		
		


		45,621
		
		


		 
		
		


		 
		
		


		27.7
		
		


		 
		
		


		 
		
		


		20.0
		
		


		 
	
	
		
		


		Commissions and floor brokerage
		
		


		 
		
		


		 
		
		


		26,301
		
		


		 
		
		


		 
		
		


		23,416
		
		


		 
		
		


		 
		
		


		13,287
		
		


		 
		
		


		 
		
		


		12.3
		
		


		 
		
		


		 
		
		


		76.2
		
		


		 
	
	
		
		


		Other operating expenses
		
		


		 
		
		


		 
		
		


		114,081
		
		


		 
		
		


		 
		
		


		84,205
		
		


		 
		
		


		 
		
		


		68,898
		
		


		 
		
		


		 
		
		


		35.5
		
		


		 
		
		


		 
		
		


		22.2
		
		


		 
	
	
		
		

		

		Total non-interest expenses
		
		


		 
		
		


		$ 
		
		


		1,382,255
		
		


		 
		
		


		$ 
		
		


		970,222
		
		


		 
		
		


		$
		
		


		778,568
		
		


		 
		
		


		 
		
		


		42.5
		
		


		%
		
		


		 
		
		


		24.6
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



Year Ended
December 31, 2010 Compared With Year Ended December 31, 2009



Except as
noted in the following discussion of variances, the increase in non-interest
expenses can be attributed principally to our continued expansion, both
organically and through our acquisitions of TWPG on July 1, 2010, and the UBS
Acquired Locations in the third and fourth quarters of 2009, and an increase in
administrative overhead to support our growth.  




Compensation and benefits -
Compensation and benefits expenses, which are the largest component of our
expenses, include salaries, bonuses, transition pay, benefits, amortization of
stock-based compensation, employment taxes, and other employee-related costs. A
significant portion of compensation expense is comprised of production-based
variable compensation, including discretionary bonuses, which fluctuates in
proportion to the level of business activity, increasing with higher revenues
and operating profits. Other compensation costs, including base salaries,
stock-based compensation amortization, and benefits, are more fixed in nature.



For the
year ended December 31, 2010, compensation and benefits expense increased 47.1%,
or $338.1 million, to $1.1 billion from $718.1 million in 2009. The increase is
primarily attributable to an increase in
deferred
compensation expense as a result of
the
modification of our deferred compensation plan. We accelerated all unvested
deferred compensation as a result of the plan modification resulting in a
non-cash, pre-tax charge of $179.5 million.  



37










Excluding
the acceleration of deferred compensation expenses and merger-related expenses,
compensation and benefits expense as a percentage of net revenues was 62.9% for
the year ended December 31, 2010, compared to
65.8%
in 2009.  



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 $79.8 million (5.8% of net revenues)
for the year ended December 31, 2010, compared to $56.2 million (5.2% of net
revenues) in 2009. The upfront notes are amortized over a five- to ten-year
period
if the individual satisfies certain conditions, usually based on continued
employment and certain performance standards.




Occupancy and equipment rental -  
For the
year ended December 31, 2010, occupancy and equipment rental expense increased
29.0% to $115.7 million from $89.7 million during the year ended December 31,
2009. The increase was attributable to additional occupancy expense from organic
growth and our merger with TWPG, including costs related to abandonment of
certain leased property as a result of our continued integration effort. As of
December 31, 2010, we had 312 locations compared to 294 at December 31, 2009.




Communications and office supplies -
Communications expense includes costs for telecommunication and data
communication, primarily for obtaining third-party market data information. For
the year ended December 31, 2010, communications and office supplies expense
increased 27.7% to $69.9 million from $54.7 million in 2009.  




Commissions and floor brokerage -  
For the
year ended December 31, 2010, commissions and floor brokerage expense increased
12.3% to $26.3 million from $23.4 million in 2009.




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



For the
year ended December 31, 2010, other operating expenses increased 35.5% to $114.1
million from $84.2 million during the year ended December 31, 2009. The increase
is primarily attributable to the continued growth in all segments during 2010,
which included increased license and registration fees, SIPC and FDIC
assessments, securities processing fees, travel and promotion, transaction costs
associated with the TWPG acquisition, and legal expenses. The increase in legal
expenses is attributable to an increase in the number of customer claims arising
from volatile market conditions. We are subject to various proceedings and
claims arising primarily from our securities business activities, including
lawsuits, arbitration claims, class actions, and regulatory matters.




Provision for income taxes/(benefit) -  
For the
year ended December 31, 2010, our provision for income taxes was a benefit of
$2.1 million compared to expense of $44.6 million in 2009.  



The
current year effective tax rate was impacted by state tax adjustments, a change
in our valuation allowance, and an increase in the rate applied to our deferred
tax assets, all of which had a noticeable impact on our effective rate because
of the small pre-tax loss we incurred for the year. The effective tax rate for
the year ended December 31, 2009, was reduced due to the recognition of a tax
benefit related to an investment and jobs creation tax credit during the third
quarter of 2009.



38










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



Except as
noted in the following discussion of variances, the increase in non-interest
expenses was attributable principally to our continued expansion, increased
administrative overhead to support the growth in our segments, and the
transaction costs associated with the UBS Acquired Locations acquisition.






Compensation and benefits -
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 in
2008.  The increase in compensation and benefits expense was
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% in 2008. The decrease in
compensation and benefits expense as a percent of net revenues was 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) in 2008. In addition, for the year ended December
31, 2008, compensation and benefits expense included $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 in 2008. The increase was primarily
due to the continued expansion of our segments, which increased our rent and
depreciation expense.  As of December 31, 2009, we had 294 locations compared to
225 at December 31, 2008.




Communications and office supplies -  
For the
year ended December 31, 2009, communications and office supplies expense
increased 20.0% to $54.7 million from $45.6 million in 2008. The increases were
primarily attributable to our continued expansion as we sustained our growth
initiatives throughout 2009.  




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 in 2008. The increase from the prior
year is 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 -  
For the
year ended December 31, 2009, other operating expenses increased 22.2% to $84.2
million from $68.9 million in 2008.  



The
increase was 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 the UBS Acquired Locations acquisition costs of $3.4 million. The increase
in legal expenses was attributable to an increase in litigation associated with
ARS investigations 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 in 2008,
representing an effective tax rate of 39.5%. Our 2009 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.



39










SEGMENT
ANALYSIS  



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



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



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

residential, consumer, and commercial lending, as well as Federal Depository
Insurance Corporation-insured deposit accounts to customers of our broker-dealer
subsidiaries and to the general public.



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



The Other
segment includes interest income from stock borrow activities, unallocated
interest expense, interest income and gains and losses from investments held,
compensation expense associated with the deferred compensation plan
modification, and all unallocated overhead cost 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;
and general administration and acquisition charges primarily related to the TWPG
acquisition.



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.



40










 Results of
Operations - Global Wealth Management



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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended December 31,
		
		


		 
		
		


		Percentage



		Change  
		
		


		 
		
		


		 
		
		


		As a Percentage of



		Net Revenues



		for the Year Ended



		December 31,
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2010 vs. 2009
		
		


		 
		
		


		2009 vs. 2008
		
		


		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
	
	
		
		

		

		Revenues:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Commissions
		
		


		 
		
		


		$
		
		


		321,541
		
		


		 
		
		


		$
		
		


		234,052
		
		


		 
		
		


		$
		
		


		191,542
		
		


		 
		
		


		37.4
		
		


		%
		
		


		22.2
		
		


		%
		
		


		 
		
		


		38.2
		
		


		%
		
		


		39.3
		
		


		%
		
		


		40.4
		
		


		%
	
	
		
		


		Principal transactions
		
		


		 
		
		


		 
		
		


		239,851
		
		


		 
		
		


		 
		
		


		194,384
		
		


		 
		
		


		 
		
		


		124,578
		
		


		 
		
		


		23.4
		
		


		 
		
		


		56.0
		
		


		 
		
		


		 
		
		


		28.4
		
		


		 
		
		


		32.6
		
		


		 
		
		


		26.3
		
		


		 
	
	
		
		


		Asset management and service fees
		
		


		 
		
		


		 
		
		


		192,073
		
		


		 
		
		


		 
		
		


		116,818
		
		


		 
		
		


		 
		
		


		121,894
		
		


		 
		
		


		64.4
		
		


		 
		
		


		(4.2
		
		


		)
		
		


		 
		
		


		22.8
		
		


		 
		
		


		19.6
		
		


		 
		
		


		25.7
		
		


		 
	
	
		
		


		Interest
		
		


		 
		
		


		 
		
		


		54,543
		
		


		 
		
		


		 
		
		


		35,269
		
		


		 
		
		


		 
		
		


		38,207
		
		


		 
		
		


		54.6
		
		


		 
		
		


		(7.7
		
		


		)
		
		


		 
		
		


		6.5
		
		


		 
		
		


		5.9
		
		


		 
		
		


		8.1
		
		


		 
	
	
		
		


		Investment banking
		
		


		 
		
		


		 
		
		


		22,768
		
		


		 
		
		


		 
		
		


		14,906
		
		


		 
		
		


		 
		
		


		15,515
		
		


		 
		
		


		52.7
		
		


		 
		
		


		(3.9
		
		


		)
		
		


		 
		
		


		2.7
		
		


		 
		
		


		2.5
		
		


		 
		
		


		3.3
		
		


		 
	
	
		
		


		Other income/(loss)
		
		


		 
		
		


		 
		
		


		22,202
		
		


		 
		
		


		 
		
		


		8,626
		
		


		 
		
		


		 
		
		


		(1,174
		
		


		) 
		
		


		157.4
		
		


		 
		
		


		*
		
		


		 
		
		


		 
		
		


		2.6
		
		


		 
		
		


		1.5
		
		


		 
		
		


		(0.2
		
		


		)
	
	
		
		

		

		Total revenues
		
		


		 
		
		


		 
		
		


		852,978
		
		


		 
		
		


		 
		
		


		604,055
		
		


		 
		
		


		 
		
		


		490,562
		
		


		 
		
		


		41.2
		
		


		 
		
		


		23.1
		
		


		 
		
		


		 
		
		


		101.2
		
		


		 
		
		


		101.4
		
		


		 
		
		


		103.5
		
		


		 
	
	
		
		


		Interest expense
		
		


		 
		
		


		 
		
		


		9,709
		
		


		 
		
		


		 
		
		


		8,081
		
		


		 
		
		


		 
		
		


		16,710
		
		


		 
		
		


		20.1
		
		


		 
		
		


		(51.6
		
		


		)
		
		


		 
		
		


		1.2
		
		


		 
		
		


		1.4
		
		


		 
		
		


		3.5
		
		


		 
	
	
		
		

		

		Net revenues
		
		


		 
		
		


		 
		
		


		843,269
		
		


		 
		
		


		 
		
		


		595,974
		
		


		 
		
		


		 
		
		


		473,852
		
		


		 
		
		


		41.5
		
		


		 
		
		


		25.8
		
		


		 
		
		


		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Non-interest expenses:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Compensation and benefits
		
		


		 
		
		


		 
		
		


		503,456
		
		


		 
		
		


		 
		
		


		370,157
		
		


		 
		
		


		 
		
		


		289,207
		
		


		 
		
		


		36.0
		
		


		 
		
		


		28.0
		
		


		 
		
		


		 
		
		


		59.7
		
		


		 
		
		


		62.1
		
		


		 
		
		


		61.0
		
		


		 
	
	
		
		


		Occupancy and equipment rental
		
		


		 
		
		


		 
		
		


		60,886
		
		


		 
		
		


		 
		
		


		50,487
		
		


		 
		
		


		 
		
		


		36,200
		
		


		 
		
		


		20.6
		
		


		 
		
		


		39.5
		
		


		 
		
		


		 
		
		


		7.2
		
		


		 
		
		


		8.5
		
		


		 
		
		


		7.6
		
		


		 
	
	
		
		


		Communication and office supplies
		
		


		 
		
		


		 
		
		


		31,356
		
		


		 
		
		


		 
		
		


		26,628
		
		


		 
		
		


		 
		
		


		19,341
		
		


		 
		
		


		17.8
		
		


		 
		
		


		37.7
		
		


		 
		
		


		 
		
		


		3.7
		
		


		 
		
		


		4.4
		
		


		 
		
		


		4.1
		
		


		 
	
	
		
		


		Commissions and floor brokerage
		
		


		 
		
		


		 
		
		


		12,126
		
		


		 
		
		


		 
		
		


		7,606
		
		


		 
		
		


		 
		
		


		4,452
		
		


		 
		
		


		59.4
		
		


		 
		
		


		70.9
		
		


		 
		
		


		 
		
		


		1.5
		
		


		 
		
		


		1.3
		
		


		 
		
		


		0.9
		
		


		 
	
	
		
		


		Other operating expenses
		
		


		 
		
		


		 
		
		


		41,422
		
		


		 
		
		


		 
		
		


		36,397
		
		


		 
		
		


		 
		
		


		23,708
		
		


		 
		
		


		13.8
		
		


		 
		
		


		53.5
		
		


		 
		
		


		 
		
		


		4.9
		
		


		 
		
		


		6.1
		
		


		 
		
		


		5.0
		
		


		 
	
	
		
		

		

		Total non-interest expenses
		
		


		 
		
		


		 
		
		


		649,246
		
		


		 
		
		


		 
		
		


		491,275
		
		


		 
		
		


		 
		
		


		372,908
		
		


		 
		
		


		32.2
		
		


		 
		
		


		31.7
		
		


		 
		
		


		 
		
		


		77.0
		
		


		 
		
		


		82.4
		
		


		 
		
		


		78.7
		
		


		 
	
	
		
		

		

		Income before income taxes
		
		


		 
		
		


		$
		
		


		194,023
		
		


		 
		
		


		$
		
		


		104,699
		
		


		 
		
		


		$
		
		


		100,944
		
		


		 
		
		


		85.3
		
		


		%
		
		


		3.7
		
		


		 %
		
		


		 
		
		


		23.0
		
		


		%
		
		


		17.6
		
		


		%
		
		


		21.3
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		*     Percentage is not meaningful.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		December 31, 2010
		
		


		 
		
		


		 
		
		


		December 31, 2009
		
		


		 
		
		


		 
		
		


		December 31, 2008
		
		


		 
	
	
		
		


		Branch offices (actual)
		
		


		 
		
		


		 
		
		


		285
		
		


		 
		
		


		 
		
		


		272
		
		


		 
		
		


		 
		
		


		196
		
		


		 
	
	
		
		


		Financial advisors (actual)
		
		


		 
		
		


		 
		
		


		1,775
		
		


		 
		
		


		 
		
		


		1,719
		
		


		 
		
		


		 
		
		


		1,142
		
		


		 
	
	
		
		


		Independent contractors (actual)
		
		


		 
		
		


		 
		
		


		160
		
		


		 
		
		


		 
		
		


		166
		
		


		 
		
		


		 
		
		


		173
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Assets in fee-based accounts:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Value (in thousands)
		
		


		 
		
		


		$
		
		


		13,001,502
		
		


		 
		
		


		$
		
		


		9,309,775
		
		


		 
		
		


		$
		
		


		5,775,565
		
		


		 
	
	
		
		


		Number of accounts (actual)
		
		


		 
		
		


		 
		
		


		57,220
		
		


		 
		
		


		 
		
		


		44,071
		
		


		 
		
		


		 
		
		


		24,177
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	




41












Year
Ended December 31, 2010 Compared With Year Ended December 31, 2009

NET
REVENUES



For the
year ended December 31, 2010, Global Wealth Management net revenues increased

41.5%
to $843.3
million from $596.0 million in 2009. The increase in net revenues for the year
ended December 31, 2010, from the prior year is attributable to growth across
all revenue line items, primarily due to an increase in financial advisors and
client assets resulting from the acquisition of the UBS Acquired Locations
during the third and fourth quarters of 2009 and the acquisition of TWPG on July
1, 2010. For the year ended December 31, 2010, revenues generated in the Global
Wealth Management segment from the UBS Acquired Locations was $111.4 million

compared to $27.1 million in 2009.
The
prior year revenues of the
UBS
Acquired Locations
were generated from the date of acquisition through the end of the year.






Commissions -  
For the
year ended December 31, 2010, commission revenues increased 37.4% to $321.5
million from $234.1 million in 2009. The increase is primarily attributable to
an increase in agency transactions in mutual fund and insurance products. These
increases are primarily attributable to an increase in the number of financial
advisors, client assets, and higher productivity. In addition, the market
turmoil and downturns, which were at unprecedented levels at the beginning of
2009, have improved in 2010.




Principal transactions
- For the year ended December 31, 2010, principal transactions revenues
increased 23.4% to $239.9 million from $194.4 million in 2009. The increase is
primarily attributable to increased principal transactions, primarily in OTC
equity and municipal debt.




Asset management and service fees -  
For the
year ended December 31, 2010, asset management and service fees increased 64.4%
to $192.1 million from $116.8 million in 2009. The increase is primarily a
result of a 39.7% increase in the value of assets in fee-based accounts in the
current year and a 29.8% increase in the number of managed accounts attributable
principally to the continued growth of the private client group and the impact
of the addition of the TWPG asset management business. During the year ended
December 31, 2010, we experienced a reduction in fees for money-fund balances
due to the waiving of fees by certain fund managers of approximately $50.0
million compared to approximately $30.0 million in the prior year. See "Assets
in fee-based accounts" included in the table above for further details.




Interest revenue -  
For the
year ended December 31, 2010, interest revenue increased 54.6% to $54.5 million
from $35.3 million in 2009. The increase is primarily due to an increase in
interest revenue from customer margin borrowing to finance trading activity and
higher average customer margin balances. The increase is also attributable to
the growth of the interest-earning assets of Stifel Bank.
See "Net
Interest Income - Stifel Bank" below for a further discussion of the changes in
net revenues.




Investment banking -  
For the
year ended December 31, 2010, investment banking revenues, which represents
sales credits related to the management of and participation in corporate and
public finance underwritings, increased
52.7%
to $22.8
million from $14.9 million in 2009. See "Investment banking" in the
Institutional Group segment discussion for additional information regarding the
changes in our investment banking revenues.




Other income -
For the year ended December 31, 2010, other income increased 157.4% to $22.2
million from $8.6 million in 2009. The increase is primarily attributable to an
increase in investment gains recorded on our investment that hedges our deferred
compensation liability, gains on our private equity investments, and an increase
in mortgage fees due to an increase in loan originations at Stifel Bank.






Interest expense -  
For the
year ended December 31, 2010, interest expense increased 20.1% to $9.7 million
from $8.1 million in 2009. The increase is primarily due to the growth of the
interest-bearing liabilities of Stifel Bank, offset by lower interest rates.
See
"Net Interest Income - Stifel Bank" below for a further discussion of the
changes in net revenues.  



42











NON-INTEREST EXPENSES 




For the
year ended December 31, 2010, Global Wealth Management non-interest expenses
increased
32.2%
to $649.2
million from $491.3 million in 2009.  



The
fluctuations in non-interest expenses, discussed below, were primarily
attributable to the continued growth of our Private Client Group during 2010.
Our expansion efforts include the UBS Acquired Locations acquisition in the
third and fourth quarters of 2009 and TWPG on July 1, 2010, as well as organic
growth. As of December 31, 2010, we had 285 branch offices compared to 272 at
December 31, 2009. In addition, since December 31, 2009, we have added 339
financial advisors and support staff.




Compensation and benefits -  
For the
year ended December 31, 2010, compensation and benefits expense increased 36.0%
to $503.5 million from $370.2 million in 2009.
The
increase is principally due to increased variable compensation as a result of
increased production due to the growth in the number of financial advisors and
fixed compensation for the additional administrative support staff, offset by
the elimination of deferred compensation expense as a result of the modification
to our deferred compensation plan, whereby we removed the service requirement
during the third quarter of 2010. See "Compensation and benefits" in the Other
segment discussion for additional information on the plan modification.




Compensation and benefits expense as a percentage of net revenues decreased to
59.7% for the year ended December 31, 2010, compared to
62.1%
in 2009. The decrease in compensation and benefits expense as a percent of net
revenues is primarily attributable to the increase in net revenues and, to a
lesser extent, the reduction in deferred compensation expense, offset by an
increase in transition pay, which consists of the amortization of upfront notes,
which are amortized over a five- to ten-year period, signing bonuses and
retention awards, and increased overhead in connection with our continued
expansion efforts. Transition pay was $54.9 million (6.5% of net revenues) for
the year ended December 31, 2010, compared to $40.6 million (6.9% of net
revenues) in 2009.  




Occupancy and equipment rental -  
For the
year ended December 31, 2010, occupancy and equipment rental expense increased
20.6% to $60.9 million from $50.5
million in 2009.




Communications and office supplies -  
For the
year ended December 31, 2010, communications and office supplies expense
increased 17.8% to $31.4 million from $26.6
million in 2009.




Commissions and floor brokerage -  
For the
year ended December 31, 2009, commissions and floor brokerage expense increased
59.4% to $12.1 million from $7.6
million in 2009.  




Other operating expenses -  
For the
year ended December 31, 2010, other operating expenses increased 13.8% to $41.4
million from $36.4
million in 2009. The increase is primarily attributable to the growth of our
private client business, as well as an increase in litigation costs to defend
industry recruiting claims. On a comparative basis, the increase over the prior
year is offset by non-recurring license and registration fees, securities
processing fees, and travel-related expenses associated with the UBS Acquired
Locations acquisition during the fourth quarter of 2009.



INCOME
BEFORE INCOME TAXES



For the
year ended December 31, 2010, income before
income taxes increased $89.3
million, or
85.3%,
to $194.0
million from $104.7 million in 2009. Profit margins have improved as a result of
the increase in revenue growth, a reduction in deferred compensation expense,
and a decline in start-up costs associated with the branches we opened during
2009, both organically and through the acquisition of the UBS Acquired
Locations.



43










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



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



NET
REVENUES



For the
year ended December 31, 2009, Global Wealth Management net revenues increased
25.8% to $596.0 million from $473.9 million in 2008. The increase in net
revenues was 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 2008. The increase was primarily attributable to
an increase in agency transactions in OTC and listed equity securities, mutual
fund, and insurance products.  




Principal transactions
- For the year ended December 31, 2009, principal transactions revenue increased
56.0% to $194.4 million from $124.6 million in 2008. The increase was 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.




Asset management and service fees -  
For the
year ended December 31, 2009, asset management and service fees decreased 4.2%
to $116.8 million from $121.9 million in 2008. The decrease was 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 Acquired Locations acquisition 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 2008. The decrease was primarily due to a decrease in
interest revenue from customer margin borrowing to finance trading activity and
lower average customer margin balances, offset by increased interest revenues of
$4.7 million from the interest-earning assets of Stifel Bank.
See
"Distribution of Assets, Liabilities, and Shareholders' Equity; Interest Rates
and Interest Rate Differential" below for a further discussion of the changes in
interest revenues.




Investment banking -
For the year ended December 31, 2009, investment banking revenues decreased 3.9%
to $14.9 million from $15.5 million in 2008.
While
there was a significant rebound in investment banking activity, which began
during the second quarter of 2009, the full-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
"Investment banking" in the Institutional Group segment discussion for
additional information regarding the changes in our investment banking revenues.




Interest expense -  
For the
year ended December 31, 2009, interest expense decreased 51.6% to $8.1 million
from $16.7 million in 2008. The decrease was 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 in 2008.



Unless
specifically discussed below, the fluctuations in non-interest expenses were
primarily attributable to the continued growth of our private client group
during the year ended December 31, 2009. Our expansion efforts include the
acquisitions of the UBS Acquired Locations 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, during the year ended December 31, 2009, we
added 1,087 financial advisors and support staff.




Compensation and benefits -  
For the
year ended December 31, 2009, compensation and benefits expense increased 28.0%
to $370.2 million from $289.2 million in 2008.
The
increase was 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.  



44











Compensation and benefits expense as a percentage of net revenues increased to
62.1% for the year ended December 31, 2009, compared to 61.0% in 2008. The
increase in compensation and benefits expense as a percent of net revenues was
primarily attributable to increased transition pay, which consisted of the
amortization of upfront notes, which are amortized over a five- to ten-year
period, signing bonuses and retention awards, and increased overhead in
connection with our continued expansion efforts. For the year ended December 31,
2009, transition pay was $40.6 million (6.9% of net revenues) compared to $28.2
million (6.0% of net revenues) for the year ended December 31, 2008.  





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 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 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 in 2008.




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



INCOME
BEFORE INCOME TAXES



For the
year ended December 31, 2009, income before
income taxes increased 3.7% to $104.7 million from $100.9 million in 2008.
Profit margins for the year ended December 31, 2009, have decreased to 17.6%
from 21.3% in 2008. Profit margins have diminished resulting from start-up costs
associated with branch office openings and the transaction costs associated with
the UBS Acquired Locations acquisition.



45










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



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



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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended
	
	
		
		

		

		 
		
		


		 
		
		


		December 31, 2010
		
		


		 
		
		


		December 31, 2009
	
	
		
		

		

		 
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Interest Income/

		
		

		Expense
		
		


		 
		
		


		Average Interest Rate
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Interest Income/



		Expense
		
		


		 
		
		


		Average Interest Rate
	
	
		
		

		

		Assets:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Federal funds sold
		
		


		 
		
		


		$
		
		


		148,533
		
		


		 
		
		


		$
		
		


		404
		
		


		 
		
		


		0.27
		
		


		%
		
		


		 
		
		


		$
		
		


		195,783
		
		


		 
		
		


		$
		
		


		763
		
		


		 
		
		


		0.39
		
		


		%
	
	
		
		


		U.S.
		government agencies
		
		


		 
		
		


		 
		
		


		56,796
		
		


		 
		
		


		 
		
		


		609
		
		


		 
		
		


		1.07
		
		


		 
		
		


		 
		
		


		 
		
		


		1,775
		
		


		 
		
		


		 
		
		


		97
		
		


		 
		
		


		5.46
		
		


		 
	
	
		
		


		State and political subdivisions:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Taxable
		
		


		 
		
		


		 
		
		


		20,819
		
		


		 
		
		


		 
		
		


		1,031
		
		


		 
		
		


		4.95
		
		


		 
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Non-taxable  (1)
		
		


		 
		
		


		 
		
		


		1,324
		
		


		 
		
		


		 
		
		


		49
		
		


		 
		
		


		3.70
		
		


		 
		
		


		 
		
		


		 
		
		


		1,096
		
		


		 
		
		


		 
		
		


		45
		
		


		 
		
		


		4.11
		
		


		 
	
	
		
		


		Mortgage-backed securities
		
		


		 
		
		


		 
		
		


		549,666
		
		


		 
		
		


		 
		
		


		14,804
		
		


		 
		
		


		2.69
		
		


		 
		
		


		 
		
		


		 
		
		


		162,694
		
		


		 
		
		


		 
		
		


		5,878
		
		


		 
		
		


		3.61
		
		


		 
	
	
		
		


		Corporate bonds
		
		


		 
		
		


		 
		
		


		57,606
		
		


		 
		
		


		 
		
		


		2,254
		
		


		 
		
		


		3.91
		
		


		 
		
		


		 
		
		


		 
		
		


		27,627
		
		


		 
		
		


		 
		
		


		1,244
		
		


		 
		
		


		4.50
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		11,450
		
		


		 
		
		


		 
		
		


		320
		
		


		 
		
		


		2.79
		
		


		 
		
		


		 
		
		


		 
		
		


		16,997
		
		


		 
		
		


		 
		
		


		717
		
		


		 
		
		


		4.22
		
		


		 
	
	
		
		


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


		 
		
		


		 
		
		


		1,272
		
		


		 
		
		


		 
		
		


		27
		
		


		 
		
		


		2.12
		
		


		 
		
		


		 
		
		


		 
		
		


		762
		
		


		 
		
		


		 
		
		


		9
		
		


		 
		
		


		1.18
		
		


		 
	
	
		
		


		Loans (2)  
		
		


		 
		
		


		 
		
		


		364,811
		
		


		 
		
		


		 
		
		


		12,347
		
		


		 
		
		


		3.38
		
		


		 
		
		


		 
		
		


		 
		
		


		239,879
		
		


		 
		
		


		 
		
		


		9,914
		
		


		 
		
		


		4.13
		
		


		 
	
	
		
		


		Loans held for sale
		
		


		 
		
		


		 
		
		


		81,062
		
		


		 
		
		


		 
		
		


		3,301
		
		


		 
		
		


		4.07
		
		


		 
		
		


		 
		
		


		 
		
		


		40,619
		
		


		 
		
		


		 
		
		


		1,616
		
		


		 
		
		


		3.98
		
		


		 
	
	
		
		

		

		Total interest-earning assets  
		(3)
		
		


		 
		
		


		$
		
		


		1,293,339
		
		


		 
		
		


		$
		
		


		35,146
		
		


		 
		
		


		2.72
		
		


		%
		
		


		 
		
		


		$
		
		


		687,232
		
		


		 
		
		


		$
		
		


		20,283
		
		


		 
		
		


		2.95
		
		


		%
	
	
		
		


		Cash and due from banks
		
		


		 
		
		


		 
		
		


		6,717
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		4,927
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Other non interest-earning assets
		
		


		 
		
		


		 
		
		


		39,518
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		23,289
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total

		assets
		
		


		 
		
		


		$
		
		


		1,339,574
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		715,448
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Liabilities and shareholders' equity:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Deposits:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Money market
		
		


		 
		
		


		$
		
		


		1,162,749
		
		


		 
		
		


		$
		
		


		4,919
		
		


		 
		
		


		0.42
		
		


		%
		
		


		 
		
		


		$
		
		


		591,961
		
		


		 
		
		


		$
		
		


		3,841
		
		


		 
		
		


		0.65
		
		


		%
	
	
		
		


		Demand deposits
		
		


		 
		
		


		 
		
		


		20,568
		
		


		 
		
		


		 
		
		


		31
		
		


		 
		
		


		0.15
		
		


		 
		
		


		 
		
		


		 
		
		


		11,072
		
		


		 
		
		


		 
		
		


		29
		
		


		 
		
		


		0.26
		
		


		 
	
	
		
		


		Time deposits
		
		


		 
		
		


		 
		
		


		7,686
		
		


		 
		
		


		 
		
		


		217
		
		


		 
		
		


		2.82
		
		


		 
		
		


		 
		
		


		 
		
		


		20,104
		
		


		 
		
		


		 
		
		


		676
		
		


		 
		
		


		3.36
		
		


		 
	
	
		
		


		Savings
		
		


		 
		
		


		 
		
		


		92
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		 
		
		


		303
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		FHLB advances
		
		


		 
		
		


		 
		
		


		652
		
		


		 
		
		


		 
		
		


		21
		
		


		 
		
		


		3.22
		
		


		 
		
		


		 
		
		


		 
		
		


		3,304
		
		


		 
		
		


		 
		
		


		103
		
		


		 
		
		


		3.12
		
		


		 
	
	
		
		


		Federal funds and repurchase agreements
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		 
		
		


		10
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		-
		
		


		 
	
	
		
		

		

		Total interest-bearing liabilities  
		(3)
		
		


		 
		
		


		$
		
		


		1,191,747
		
		


		 
		
		


		$
		
		


		5,188
		
		


		 
		
		


		0.44
		
		


		%
		
		


		 
		
		


		$
		
		


		626,754
		
		


		 
		
		


		$
		
		


		4,649
		
		


		 
		
		


		0.74
		
		


		%
	
	
		
		


		Non-interest-bearing deposits
		
		


		 
		
		


		 
		
		


		18,192
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		15,054
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Other non-interest-bearing liabilities
		
		


		 
		
		


		 
		
		


		14,352
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		3,014
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total liabilities
		
		


		 
		
		


		 
		
		


		1,224,291
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		644,822
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Shareholders' equity
		
		


		 
		
		


		 
		
		


		115,283
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		70,626
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total liabilities and shareholders' equity
		
		


		 
		
		


		$
		
		


		1,339,574
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		715,448
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Net interest margin
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		29,958
		
		


		 
		
		


		2.32
		
		


		%
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		15,634
		
		


		 
		
		


		2.27
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



(1)
Due to the 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 average balances and interest income and expenses.



46









	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended December 31, 2008
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Interest Income/

		
		

		Expense
		
		


		 
		
		


		Average Interest Rate
		
		


		 
	
	
		
		

		

		Assets:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Federal funds sold
		
		


		 
		
		


		$
		
		


		10,027
		
		


		 
		
		


		$
		
		


		214
		
		


		 
		
		


		2.14
		
		


		%
		
		


		 
	
	
		
		


		U.S.
		government agencies
		
		


		 
		
		


		 
		
		


		13,361
		
		


		 
		
		


		 
		
		


		824
		
		


		 
		
		


		6.17
		
		


		 
		
		


		 
	
	
		
		


		State and political subdivisions:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Taxable
		
		


		 
		
		


		 
		
		


		9,240
		
		


		 
		
		


		 
		
		


		375
		
		


		 
		
		


		4.05
		
		


		 
		
		


		 
	
	
		
		


		Non-taxable  (1)
		
		


		 
		
		


		 
		
		


		1,530
		
		


		 
		
		


		 
		
		


		58
		
		


		 
		
		


		3.81
		
		


		 
		
		


		 
	
	
		
		


		Mortgage-backed securities
		
		


		 
		
		


		 
		
		


		32,916
		
		


		 
		
		


		 
		
		


		1,731
		
		


		 
		
		


		5.26
		
		


		 
		
		


		 
	
	
		
		


		Corporate bonds
		
		


		 
		
		


		 
		
		


		926
		
		


		 
		

		 
		
		


		57
		
		


		 
		
		


		6.12
		
		


		 
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		20,060
		
		


		 
		
		


		 
		
		


		1,519
		
		


		 
		
		


		7.57
		
		


		 
		
		


		 
	
	
		
		


		FHLB and other capital stock
		
		


		 
		
		


		 
		
		


		991
		
		


		 
		
		


		 
		
		


		28
		
		


		 
		
		


		2.82
		
		


		 
		
		


		 
	
	
		
		


		Loans (2)  
		
		


		 
		
		


		 
		
		


		170,244
		
		


		 
		
		


		 
		
		


		9,807
		
		


		 
		
		


		5.76
		
		


		 
		
		


		 
	
	
		
		


		Loans held for sale
		
		


		 
		
		


		 
		
		


		14,598
		
		


		 
		
		


		 
		
		


		640
		
		


		 
		
		


		4.38
		
		


		 
		
		


		 
	
	
		
		

		

		Total interest-earning assets  
		(3)
		
		


		 
		
		


		$
		
		


		273,893
		
		


		 
		
		


		$
		
		


		15,253
		
		


		 
		
		


		5.57
		
		


		%
		
		


		 
	
	
		
		


		Cash and due from banks
		
		


		 
		
		


		 
		
		


		3,444
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Other non interest-earning assets
		
		


		 
		
		


		 
		
		


		23,350
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total

		assets
		
		


		 
		
		


		$
		
		


		300,687
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Liabilities and shareholders' equity:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Deposits:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Money market
		
		


		 
		
		


		$
		
		


		178,198
		
		


		 
		
		


		$
		
		


		3,491
		
		


		 
		
		


		1.96
		
		


		%
		
		


		 
	
	
		
		


		Demand deposits
		
		


		 
		
		


		 
		
		


		2,755
		
		


		 
		
		


		 
		
		


		44
		
		


		 
		
		


		1.60
		
		


		 
		
		


		 
	
	
		
		


		Time deposits
		
		


		 
		
		


		 
		
		


		36,287
		
		


		 
		
		


		 
		
		


		1,600
		
		


		 
		
		


		4.41
		
		


		 
		
		


		 
	
	
		
		


		Savings
		
		


		 
		
		


		 
		
		


		339
		
		


		 
		
		


		 
		
		


		3
		
		


		 
		
		


		0.97
		
		


		 
		
		


		 
	
	
		
		


		FHLB advances
		
		


		 
		
		


		 
		
		


		10,739
		
		


		 
		
		


		 
		
		


		275
		
		


		 
		
		


		2.56
		
		


		 
		
		


		 
	
	
		
		


		Federal funds and repurchase agreements
		
		


		 
		
		


		 
		
		


		887
		
		


		 
		
		


		 
		
		


		21
		
		


		 
		
		


		2.41
		
		


		 
		
		


		 
	
	
		
		

		

		Total interest-bearing liabilities  
		(3)
		
		


		 
		
		


		$
		
		


		229,205
		
		


		 
		
		


		$
		
		


		5,434
		
		


		 
		
		


		2.37
		
		


		%
		
		


		 
	
	
		
		


		Non-interest-bearing deposits
		
		


		 
		
		


		 
		
		


		15,293
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Other non-interest-bearing liabilities
		
		


		 
		
		


		 
		
		


		1,480
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total liabilities
		
		


		 
		
		


		 
		
		


		245,978
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Shareholders' equity
		
		


		 
		
		


		 
		
		


		54,709
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Total liabilities and shareholders' equity
		
		


		 
		
		


		$
		
		


		300,687
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Net interest margin
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		$
		
		


		9,819
		
		


		 
		
		


		3.58
		
		


		%
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



(1)
Due to the 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 average balances and interest income and expenses.



47










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, 2010, interest revenue of $35.1 million was generated
from weighted average interest-earning assets of $1.3 billion at a weighted
average interest rate of 2.72%. For the year ended December 31, 2009, interest
revenue 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%. For the year ended
December 31, 2008, interest revenue 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-earning assets
principally consist of residential, consumer, and commercial loans, securities,
and federal funds sold.



Interest
expense represents interest on customer money market accounts, interest on time
deposits, and other interest expense. The weighted average balance of
interest-bearing liabilities during the year ended December 31, 2010, was $1.2
billion at a weighted average interest rate of 0.44%. For the year ended
December 31, 2009, the weighted average balance of interest-bearing liabilities
was $626.8
million at a weighted average interest rate of
0.74%.
For the year ended December 31, 2008, the weighted average balance of
interest-bearing liabilities was $229.2
million at a weighted average interest rate of
2.37%.



The growth
in Stifel Bank has been primarily driven by: (i) the conversion of the former
UBS branches to the Stifel Nicolaus platform with money market funds and
FDIC-insured balances, and (ii) the growth in deposits associated with brokerage
customers of Stifel Nicolaus. At December 31, 2010, the balance of Stifel
Nicolaus brokerage customer deposits at Stifel Bank was $1.6 billion compared to
$1.0 billion at December 31, 2009.  



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.



48










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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Year Ended December 31, 2010

		Compared to Year Ended

		December 31, 2009
		
		


		 
		
		


		Year Ended December 31, 2008

		Compared to Year Ended 

		December 31, 2007
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Increase (decrease) due to:
		
		


		 
		
		


		Increase (decrease) due to:
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Volume
		
		


		 
		
		


		Rate
		
		


		 
		
		


		Total
		
		


		 
		
		


		Volume
		
		


		 
		
		


		Rate
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		

		

		Interest income:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Federal funds sold
		
		


		 
		
		


		$
		
		


		(375
		
		


		)
		
		


		$
		
		


		16
		
		


		 
		
		


		$
		
		


		(359
		
		


		)
		
		


		$
		
		


		862
		
		


		 
		
		


		$
		
		


		(313
		
		


		)
		
		


		$
		
		


		549
		
		


		 
	
	
		
		


		U.S.
		government agencies
		
		


		 
		
		


		 
		
		


		454
		
		


		 
		
		


		 
		
		


		58
		
		


		 
		
		


		 
		
		


		512
		
		


		 
		
		


		 
		
		


		(646
		
		


		)
		
		


		 
		
		


		(81
		
		


		)
		
		


		 
		
		


		(727
		
		


		)
	
	
		
		


		State and political subdivisions:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Taxable
		
		


		 
		
		


		 
		
		


		515
		
		


		 
		
		


		 
		
		


		516
		
		


		 
		
		


		 
		
		


		1,031
		
		


		 
		
		


		 
		
		


		(187
		
		


		)
		
		


		 
		
		


		(188
		
		


		)
		
		


		 
		
		


		(375
		
		


		)
	
	
		
		


		Non-taxable
		
		


		 
		
		


		 
		
		


		8
		
		


		 
		
		


		 
		
		


		(4
		
		


		)
		
		


		 
		
		


		4
		
		


		 
		
		


		 
		
		


		(17
		
		


		)
		
		


		 
		
		


		4
		
		


		 
		
		


		 
		
		


		(13
		
		


		)
	
	
		
		


		Mortgage-backed securities
		
		


		 
		
		


		 
		
		


		9,696
		
		


		 
		
		


		 
		
		


		(770
		
		


		)
		
		


		 
		
		


		8,926
		
		


		 
		
		


		 
		
		


		4,846
		
		


		 
		
		


		 
		
		


		(699
		
		


		)
		
		


		 
		
		


		4,147
		
		


		 
	
	
		
		


		Corporate bonds
		
		


		 
		
		


		 
		
		


		1,019
		
		


		 
		
		


		 
		
		


		(9
		
		


		)
		
		


		 
		
		


		1,010
		
		


		 
		
		


		 
		
		


		1,206
		
		


		 
		
		


		 
		
		


		(19
		
		


		)
		
		


		 
		
		


		1,187
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		(102
		
		


		)
		
		


		 
		
		


		(295
		
		


		)
		
		


		 
		
		


		(397
		
		


		)
		
		


		 
		
		


		(205
		
		


		)
		
		


		 
		
		


		(597
		
		


		)
		
		


		 
		
		


		(802
		
		


		)
	
	
		
		


		FHLB and other capital stock
		
		


		 
		
		


		 
		
		


		5
		
		


		 
		
		


		 
		
		


		13
		
		


		 
		
		


		 
		
		


		18
		
		


		 
		
		


		 
		
		


		(5
		
		


		)
		
		


		 
		
		


		(14
		
		


		)
		
		


		 
		
		


		(19
		
		


		)
	
	
		
		


		Loans  
		
		


		 
		
		


		 
		
		


		7,862
		
		


		 
		
		


		 
		
		


		(5,429
		
		


		)
		
		


		 
		
		


		2,433
		
		


		 
		
		


		 
		
		


		3,697
		
		


		 
		
		


		 
		
		


		(3,590
		
		


		)
		
		


		 
		
		


		107
		
		


		 
	
	
		
		


		Loans held for sale
		
		


		 
		
		


		 
		
		


		1,714
		
		


		 
		
		


		 
		
		


		(29
		
		


		)
		
		


		 
		
		


		1,685
		
		


		 
		
		


		 
		
		


		912
		
		


		 
		
		


		 
		
		


		64
		
		


		 
		
		


		 
		
		


		976
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		20,796
		
		


		 
		
		


		$
		
		


		(5,933
		
		


		)
		
		


		$
		
		


		14,863
		
		


		 
		
		


		$
		
		


		10,463
		
		


		 
		
		


		$
		
		


		(5,433
		
		


		)
		
		


		$
		
		


		5,030
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Increase (decrease) due to:
		
		


		 
		
		


		Increase (decrease) due to:
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Volume
		
		


		 
		
		


		Rate
		
		


		 
		
		


		Total
		
		


		 
		
		


		Volume
		
		


		 
		
		


		Rate
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		

		

		Interest expense:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Deposits:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Money market
		
		


		 
		
		


		$
		
		


		1,514
		
		


		 
		
		


		$
		
		


		(436
		
		


		)
		
		


		$
		
		


		1,078
		
		


		 
		
		


		$
		
		


		3,900
		
		


		 
		
		


		$
		
		


		(3,550
		
		


		)
		
		


		$
		
		


		350
		
		


		 
	
	
		
		


		Time deposits
		
		


		 
		
		


		 
		
		


		(300
		
		


		)
		
		


		 
		
		


		(159
		
		


		)
		
		


		 
		
		


		(459
		
		


		)
		
		


		 
		
		


		(603
		
		


		)
		
		


		 
		
		


		(321
		
		


		)
		
		


		 
		
		


		(924
		
		


		)
	
	
		
		


		Demand deposits
		
		


		 
		
		


		 
		
		


		3
		
		


		 
		
		


		 
		
		


		(1
		
		


		)
		
		


		 
		
		


		2
		
		


		 
		
		


		 
		
		


		46
		
		


		 
		
		


		 
		
		


		(61
		
		


		)
		
		


		 
		
		


		(15
		
		


		)
	
	
		
		


		Savings
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(3
		
		


		)
		
		


		 
		
		


		(3
		
		


		)
	
	
		
		


		FHLB advances
		
		


		 
		
		


		 
		
		


		(120
		
		


		)
		
		


		 
		
		


		38
		
		


		 
		
		


		 
		
		


		(82
		
		


		)
		
		


		 
		
		


		(222
		
		


		)
		
		


		 
		
		


		50
		
		


		 
		
		


		 
		
		


		(172
		
		


		)
	
	
		
		


		Federal funds and repurchase agreements
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(11
		
		


		)
		
		


		 
		
		


		(10
		
		


		)
		
		


		 
		
		


		(21
		
		


		)
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		1,097
		
		


		 
		
		


		$
		
		


		(558
		
		


		)
		
		


		$
		
		


		539
		
		


		 
		
		


		$
		
		


		3,110
		
		


		 
		
		


		$
		
		


		(3,895
		
		


		)
		
		


		$
		
		


		(785
		
		


		)
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



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.



49










II.   
Investment Portfolio



The
following tables provide a summary of the amortized cost and fair values of the
available-for-sale and held-to-maturity securities for the periods indicated 
(in thousands):


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		December 31, 2010
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Amortized

		
		

		cost
		
		


		 
		
		


		Gross unrealized
		

		
		

		gains  (1)
		
		


		 
		
		


		Gross unrealized losses  (1)
		
		


		 
		
		


		Estimated

		
		

		fair value
		
		


		 
	
	
		
		

		

		Available-for-sale
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		


		 
		
		


		$
		
		


		24,972
		
		


		 
		
		


		$
		
		


		58
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		25,030
		
		


		 
	
	
		
		


		State and municipal securities
		
		


		 
		
		


		 
		
		


		26,678
		
		


		 
		
		


		 
		
		


		727
		
		


		 
		
		


		 
		
		


		(1,062
		
		


		)
		
		


		 
		
		


		26,343
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		


		 
		
		


		 
		
		


		692,922
		
		


		 
		
		


		 
		
		


		6,938
		
		


		 
		
		


		 
		
		


		(2,697
		
		


		)
		
		


		 
		
		


		697,163
		
		


		 
	
	
		
		


		Non-agency
		
		


		 
		
		


		 
		
		


		29,319
		
		


		 
		
		


		 
		
		


		744
		
		


		 
		
		


		 
		
		


		(790
		
		


		)
		
		


		 
		
		


		29,273
		
		


		 
	
	
		
		


		Commercial
		
		


		 
		
		


		 
		
		


		66,912
		
		


		 
		
		


		 
		
		


		1,212
		
		


		 
		
		


		 
		
		


		(128
		
		


		)
		
		


		 
		
		


		67,996
		
		


		 
	
	
		
		


		Corporate fixed income securities
		
		


		 
		
		


		 
		
		


		153,523
		
		


		 
		
		


		 
		
		


		1,705
		
		


		 
		
		


		 
		
		


		(327
		
		


		)
		
		


		 
		
		


		154,901
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		11,331
		
		


		 
		
		


		 
		
		


		677
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		12,008
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		1,005,657
		
		


		 
		
		


		$
		
		


		12,061
		
		


		 
		
		


		$
		
		


		(5,004
		
		


		)
		
		


		$
		
		


		1,012,714
		
		


		 
	
	
		
		

		

		Held-to-maturity  (2)
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Municipal auction rate securities
		
		


		 
		
		


		$
		
		


		43,719
		
		


		 
		
		


		$
		
		


		3,803
		
		


		 
		
		


		$
		
		


		(171
		
		


		)
		
		


		$
		
		


		47,351
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		8,921
		
		


		 
		
		


		 
		
		


		198
		
		


		 
		
		


		 
		
		


		(3,486
		
		


		)
		
		


		 
		
		


		5,633
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		$
		
		


		52,640
		
		


		 
		
		


		$
		
		


		4,001
		
		


		 
		
		


		$
		
		


		(3,657
		
		


		)
		
		


		$
		
		


		52,984
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		December 31, 2009
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Amortized

		
		

		cost
		
		


		 
		
		


		Gross unrealized
		

		
		

		gains  (1)
		
		


		 
		
		


		Gross unrealized losses  (1)
		
		


		 
		
		


		Estimated

		
		

		fair value
		
		


		 
	
	
		
		

		

		Available-for-sale
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		


		 
		
		


		$
		
		


		998
		
		


		 
		
		


		$
		
		


		13
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		1,011
		
		


		 
	
	
		
		


		State and municipal securities
		
		


		 
		
		


		 
		
		


		960
		
		


		 
		
		


		 
		
		


		32
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		992
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		


		 
		
		


		 
		
		


		432,820
		
		


		 
		
		


		 
		
		


		1,880
		
		


		 
		
		


		 
		
		


		(1,681
		
		


		)
		
		


		 
		
		


		433,019
		
		


		 
	
	
		
		


		Non-agency
		
		


		 
		
		


		 
		
		


		39,905
		
		


		 
		
		


		 
		
		


		683
		
		


		 
		
		


		 
		
		


		(2,122
		
		


		)
		
		


		 
		
		


		38,466
		
		


		 
	
	
		
		


		Commercial
		
		


		 
		
		


		 
		
		


		47,274
		
		


		 
		
		


		 
		
		


		683
		
		


		 
		
		


		 
		
		


		(317
		
		


		)
		
		


		 
		
		


		47,640
		
		


		 
	
	
		
		


		Corporate fixed income securities
		
		


		 
		
		


		 
		
		


		40,788
		
		


		 
		
		


		 
		
		


		2,102
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		42,890
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		13,235
		
		


		 
		
		


		 
		
		


		1,235
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		14,470
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		575,980
		
		


		 
		
		


		$
		
		


		6,628
		
		


		 
		
		


		$
		
		


		(4,120
		
		


		)
		
		


		$
		
		


		578,488
		
		


		 
	
	
		
		

		

		Held-to-maturity  (2)
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		$
		
		


		7,574
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(3,298
		
		


		)
		
		


		$
		
		


		4,276
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



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



(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 consolidated
financial statements.



50









	
		
		

		

		 
		
		


		 
		
		


		December 31, 2008
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Amortized

		
		

		cost
		
		


		 
		
		


		Gross unrealized
		

		
		

		gains  (1)
		
		


		 
		
		


		Gross unrealized losses  (1)
		
		


		 
		
		


		Estimated

		
		

		fair value
		
		


		 
	
	
		
		

		

		Available-for-sale
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		


		 
		
		


		$
		
		


		8,447
		
		


		 
		
		


		$
		
		


		144
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		8,591
		
		


		 
	
	
		
		


		State and municipal securities
		
		


		 
		
		


		 
		
		


		1,513
		
		


		 
		
		


		 
		
		


		19
		
		


		 
		
		


		 
		
		


		(1
		
		


		)
		
		


		 
		
		


		1,531
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		


		 
		
		


		 
		
		


		12,821
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(391
		
		


		)
		
		


		 
		
		


		12,430
		
		


		 
	
	
		
		


		Non-agency
		
		


		 
		
		


		 
		
		


		23,091
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(5,669
		
		


		)
		
		


		 
		
		


		17,422
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		11,400
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(977
		
		


		)
		
		


		 
		
		


		10,423
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		$
		
		


		57,272
		
		


		 
		
		


		$
		
		


		163
		
		


		 
		
		


		$
		
		


		(7,038
		
		


		)
		
		


		$
		
		


		50,397
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Held-to-maturity  (2)
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		$
		
		


		7,574
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(1,324
		
		


		)
		
		


		$
		
		


		6,250
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



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



(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 consolidated
financial statements.




Other-Than-Temporary Impairment



We
evaluate our investment securities portfolio on a quarterly basis for
other-than-temporary impairment ("OTTI"). We assess 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 will not 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. For
securities which we expect to sell, all OTTI is recognized in earnings.




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



Pooled
trust preferred securities represent collateralized debt obligations ("CDO")
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 utilized an internal
resource with industry experience in pooled trust preferred securities
valuations to provide assistance in estimating the fair value and expected cash
flows for each security in this portfolio. Relying on cash flows was necessary
because there was a lack of observable transactions in the market and many of
the original sponsors or dealers for these securities were no longer able to
provide a fair value that was compliant with Topic 820.



Based on
the evaluation, we recognized a credit-related other-than-temporary impairment
of $0.9
million
through earnings for the year ended December 31, 2010. During the year ended
December 31, 2010, the remaining balance of other comprehensive income related
to the CDO was written off, and consequently, we reduced the amortized cost of
the security. If certain loss thresholds are exceeded, this bond would
experience an event of default that would allow the senior class to liquidate
the collateral securing this investment, which could adversely impact our
valuation.



51










As of
December 31, 2010, 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 and do not believe there is additional OTTI
from these securities other than what has already been recorded.  



Since the
decline in fair value of the securities is not attributable to credit quality
but rather to changes in interest rates and the liquidity issues that have had a
pervasive impact on the market, and because we do not have the intent to sell
these securities and it is not likely we would be required to sell these
securities until a fair value recovery or maturity, we do not consider these
securities to be other-than-temporarily impaired as of December 31, 2010.



The
maturities and related weighted-average yields of available-for-sale and
held-to-maturity securities at December 31, 2010, are as follows (in
thousands, except rates):


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Within 1



		Year
		
		


		 
		
		


		1-5 Years
		
		


		 
		
		


		5-10 Years
		
		


		 
		
		


		After 10 Years
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		

		

		Available-for-sale:  (1)
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		U.S. government securities
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		25,030
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		25,030
		
		


		 
	
	
		
		


		State and municipal securities
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		2,938
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		23,405
		
		


		 
		
		


		 
		
		


		26,343
		
		


		 
	
	
		
		


		Mortgage-backed securities:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Agency
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		49,661
		
		


		 
		
		


		 
		
		


		647,502
		
		


		 
		
		


		 
		
		


		697,163
		
		


		 
	
	
		
		


		Non-agency
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		6,195
		
		


		 
		
		


		 
		
		


		23,078
		
		


		 
		
		


		 
		
		


		29,273
		
		


		 
	
	
		
		


		Commercial
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		10,119
		
		


		 
		
		


		 
		
		


		15,151
		
		


		 
		
		


		 
		
		


		42,726
		
		


		 
		
		


		 
		
		


		67,996
		
		


		 
	
	
		
		


		Corporate fixed income securities
		
		


		 
		
		


		 
		
		


		14,067
		
		


		 
		
		


		 
		
		


		139,654
		
		


		 
		
		


		 
		
		


		1,180
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		154,901
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		7,073
		
		


		 
		
		


		 
		
		


		4,935
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		12,008
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		14,067
		
		


		 
		
		


		$
		
		


		184,814
		
		


		 
		
		


		$
		
		


		77,122
		
		


		 
		
		


		$
		
		


		736,711
		
		


		 
		
		


		$
		
		


		1,012,714
		
		


		 
	
	
		
		

		

		Held-to-Maturity:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Municipal auction rate securities
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		43,719
		
		


		 
		
		


		$
		
		


		43,719
		
		


		 
	
	
		
		


		Asset-backed securities
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		8,921
		
		


		 
		
		


		 
		
		


		8,921
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		52,640
		
		


		 
		
		


		$
		
		


		52,640
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Weighted-average yield
		
		


		 
		
		


		 
		
		


		3.64
		
		


		%
		
		


		 
		
		


		2.31
		
		


		%
		
		


		 
		
		


		3.20
		
		


		%
		
		


		 
		
		


		3.29
		
		


		%
		
		


		 
		
		


		3.12
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



(1) 
Due to the
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, 2010.



52










III.  Loan
Portfolio



The
following table presents the balance and associated percentage of each major
loan category in Stifel Bank's loan portfolio for the periods indicated (in
thousands):


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		As of December 31,
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007  (1)
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Consumer
		
		


		 
		
		


		$
		
		


		266,806
		
		


		 
		
		


		$
		
		


		227,436
		
		


		 
		
		


		$
		
		


		19,662
		
		


		 
		
		


		$
		
		


		4,044
		
		


		 
	
	
		
		


		Residential real estate
		
		


		 
		
		


		 
		
		


		49,550
		
		


		 
		
		


		 
		
		


		52,086
		
		


		 
		
		


		 
		
		


		58,778
		
		


		 
		
		


		 
		
		


		24,285
		
		


		 
	
	
		
		


		Commercial  
		
		


		 
		
		


		 
		
		


		41,965
		
		


		 
		
		


		 
		
		


		11,294
		
		


		 
		
		


		 
		
		


		27,538
		
		


		 
		
		


		 
		
		


		31,417
		
		


		 
	
	
		
		


		Home equity lines of credit
		
		


		 
		
		


		 
		
		


		30,966
		
		


		 
		
		


		 
		
		


		33,369
		
		


		 
		
		


		 
		
		


		28,612
		
		


		 
		
		


		 
		
		


		1,524
		
		


		 
	
	
		
		


		Commercial real estate
		
		


		 
		
		


		 
		
		


		1,637
		
		


		 
		
		


		 
		
		


		10,152
		
		


		 
		
		


		 
		
		


		38,446
		
		


		 
		
		


		 
		
		


		39,184
		
		


		 
	
	
		
		


		Construction and land
		
		


		 
		
		


		 
		
		


		524
		
		


		 
		
		


		 
		
		


		952
		
		


		 
		
		


		 
		
		


		13,968
		
		


		 
		
		


		 
		
		


		24,447
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		391,448
		
		


		 
		
		


		 
		
		


		335,289
		
		


		 
		
		


		 
		
		


		187,004
		
		


		 
		
		


		 
		
		


		124,901
		
		


		 
	
	
		
		


		Unamortized loan origination costs, net of loan fees
		
		


		 
		
		


		 
		
		


		392
		
		


		 
		
		


		 
		
		


		1,556
		
		


		 
		
		


		 
		
		


		591
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Loans in process
		
		


		 
		
		


		 
		
		


		233
		
		


		 
		
		


		 
		
		


		14
		
		


		 
		
		


		 
		
		


		(3,878
		
		


		)
		
		


		 
		
		


		109
		
		


		 
	
	
		
		


		Allowance for loan losses
		
		


		 
		
		


		 
		
		


		(2,331
		
		


		)
		
		


		 
		
		


		(1,702
		
		


		)
		
		


		 
		
		


		(2,448
		
		


		)
		
		


		 
		
		


		(1,685
		
		


		)
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		389,742
		
		


		 
		
		


		$
		
		


		335,157
		
		


		 
		
		


		$
		
		


		181,269
		
		


		 
		
		


		$
		
		


		123,325
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		(1) 
		
		

		Stifel Bank was acquired on April 2, 2007.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



The
maturities of the loan portfolio at December 31, 2010, are as follows (in
thousands):


	
		
		


		 
		
		


		 
		
		


		Within 1 Year
		
		


		 
		
		


		1-5 Years
		
		


		 
		
		


		Over 5 Years
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		$
		
		


		281,046
		
		


		 
		
		


		$
		
		


		48,047
		
		


		 
		
		


		$
		
		


		62,355
		
		


		 
		
		


		$
		
		


		391,448
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



The
sensitivity of loans with maturities in excess of one year at December 31, 2010,
is as follows (in thousands):


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		1-5 Years
		
		


		 
		
		


		Over 5 Years
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Fixed rate loans
		
		


		 
		
		


		$
		
		


		16,248
		
		


		 
		
		


		$
		
		


		3,867
		
		


		 
		
		


		$
		
		


		20,115
		
		


		 
	
	
		
		


		Variable or adjustable rate loans
		
		


		 
		
		


		 
		
		


		31,799
		
		


		 
		
		


		 
		
		


		58,488
		
		


		 
		
		


		 
		
		


		90,287
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		$
		
		


		48,047
		
		


		 
		
		


		$
		
		


		62,355
		
		


		 
		
		


		$
		
		


		110,402
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



53










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


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		Year Ended December 31,
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2007  (1)
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Allowance for loan losses, beginning of period
		
		


		 
		
		


		$
		
		


		1,702
		
		


		 
		
		


		$
		
		


		2,448
		
		


		 
		
		


		$ 
		
		


		1,685
		
		


		 
		
		


		$
		
		


		-
		
		


		 
	
	
		
		


		Acquisition of Stifel Bank
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,127
		
		


		 
	
	
		
		


		Provision for loan losses
		
		


		 
		
		


		 
		
		


		460
		
		


		 
		
		


		 
		
		


		604
		
		


		 
		
		


		 
		
		


		1,923
		
		


		 
		
		


		 
		
		


		558
		
		


		 
	
	
		
		


		Charge-offs:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Real estate construction loans
		
		


		 
		
		


		 
		
		


		(216
		
		


		)
		
		


		 
		
		


		(213
		
		


		)
		
		


		 
		
		


		(414
		
		


		)
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Construction and land
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(859
		
		


		)
		
		


		 
		
		


		(493
		
		


		)
		
		


		 
		
		


		(2
		
		


		)
	
	
		
		


		Commercial real estate
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(294
		
		


		)
		
		


		 
		
		


		(253
		
		


		)
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Other
		
		


		 
		
		


		 
		
		


		(2
		
		


		)
		
		


		 
		
		


		(25
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Total charge-offs
		
		


		 
		
		


		 
		
		


		(218
		
		


		)
		
		


		 
		
		


		(1,391
		
		


		)
		
		


		 
		
		


		(1,160
		
		


		)
		
		


		 
		
		


		(2
		
		


		)
	
	
		
		


		Recoveries
		
		


		 
		
		


		 
		
		


		387
		
		


		 
		
		


		 
		
		


		41
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		2
		
		


		 
	
	
		
		


		Allowance for loan losses, end of period
		
		


		 
		
		


		$
		
		


		2,331
		
		


		 
		
		


		$
		
		


		1,702
		
		


		 
		
		


		$
		
		


		2,448
		
		


		 
		
		


		$
		
		


		1,685
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Net charge-offs to average bank loans outstanding, net
		
		


		 
		
		


		 
		
		


		(0.05)
		
		


		%
		
		


		 
		
		


		0.58
		
		


		%
		
		


		 
		
		


		0.64
		
		


		%
		
		


		 
		
		


		0.00
		
		


		%
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		(1) 
		
		

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


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



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


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		December 31, 2010
		
		


		 
		
		


		 
		
		


		December 31, 2009
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		Balance
		
		


		 
		
		


		Percent(1)
		
		


		 
		
		


		 
		
		


		Balance
		
		


		 
		
		


		Percent(1)
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Commercial
		
		


		 
		
		


		$ 
		
		


		696
		
		


		 
		
		


		 
		
		


		10.7
		
		


		%
		
		


		 
		
		


		$  
		
		


		321
		
		


		 
		
		


		 
		
		


		3.4
		
		


		%
	
	
		
		


		Residential real estate
		
		


		 
		
		


		 
		
		


		681
		
		


		 
		
		


		 
		
		


		12.7
		
		


		 
		
		


		 
		
		


		 
		
		


		619
		
		


		 
		
		


		 
		
		


		15.8
		
		


		 
	
	
		
		


		Commercial real estate
		
		


		 
		
		


		 
		
		


		278
		
		


		 
		
		


		 
		
		


		0.4
		
		


		 
		
		


		 
		
		


		 
		
		


		610
		
		


		 
		
		


		 
		
		


		3.0
		
		


		 
	
	
		
		


		Consumer
		
		


		 
		
		


		 
		
		


		288
		
		


		 
		
		


		 
		
		


		68.2
		
		


		 
		
		


		 
		
		


		 
		
		


		152
		
		


		 
		
		


		 
		
		


		77.8
		
		


		 
	
	
		
		


		Unallocated
		
		


		 
		
		


		 
		
		


		388
		
		


		 
		
		


		 
		
		


		8.0
		
		


		 
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		2,331
		
		


		 
		
		


		 
		
		


		100.0
		
		


		%
		
		


		 
		
		


		$
		
		


		1,702
		
		


		 
		
		


		 
		
		


		100.0
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	


 


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		December 31, 2008
		
		


		 
		
		


		 
		
		


		December 31, 2007(2)
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		Balance
		
		


		 
		
		


		Percent(1)
		
		


		 
		
		


		 
		
		


		Balance
		
		


		 
		
		


		Percent(1)
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Commercial
		
		


		 
		
		


		$
		
		


		646
		
		


		 
		
		


		 
		
		


		14.7
		
		


		%
		
		


		 
		
		


		$
		
		


		56
		
		


		 
		
		


		 
		
		


		3.3
		
		


		%
	
	
		
		


		Residential real estate
		
		


		 
		
		


		 
		
		


		584
		
		


		 
		
		


		 
		
		


		44.8
		
		


		 
		
		


		 
		
		


		 
		
		


		100
		
		


		 
		
		


		 
		
		


		5.9
		
		


		 
	
	
		
		


		Commercial real estate
		
		


		 
		
		


		 
		
		


		1,192
		
		


		 
		
		


		 
		
		


		30.0
		
		


		 
		
		


		 
		
		


		 
		
		


		972
		
		


		 
		
		


		 
		
		


		57.7
		
		


		 
	
	
		
		


		Consumer
		
		


		 
		
		


		 
		
		


		26
		
		


		 
		
		


		 
		
		


		10.5
		
		


		 
		
		


		 
		
		


		 
		
		


		8
		
		


		 
		
		


		 
		
		


		0.5
		
		


		 
	
	
		
		


		Unallocated
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		 
		
		


		549
		
		


		 
		
		


		 
		
		


		32.6
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		$
		
		


		2,448
		
		


		 
		
		


		 
		
		


		100.0
		
		


		%
		
		


		 
		
		


		$
		
		


		1,685
		
		


		 
		
		


		 
		
		


		100.0
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		(1) 
		
		

		Percent of

		loans to loan portfolio total.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		(2) 
		
		

		Stifel Bank was acquired on April 2, 2007.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	


54










At
December 31, 2010, Stifel Bank had $1.1 million of non-accrual loans that were
more than 90 days past due, for which there was a specific allowance of $0.2
million. Further, Stifel Bank had $0.4 million and $0.5 million in troubled debt
restructurings at December 31, 2010 and 2009, respectively. At December 31,
2009, 2008, and 2007, Stifel Bank had $1.4 million, $0.6 million, and $0.7
million in non-accrual loans, respectively, for which there was a specific
reserve of $0.1 million,
$0.2
million, and $0.3 million, respectively.
In
addition, there were no accrual loans delinquent 90 days or more or troubled
debt restructurings at December 31, 2008 and 2007.  



Stifel
Bank does not engage in sub-prime lending.
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, 2010, 2009, 2008, and 2007, were immaterial to the consolidated
financial statements.



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



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,
	
	
		
		


		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
	
	
		
		


		 
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Average Interest Rate
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Average Interest Rate
		
		


		 
		
		


		Average Balance
		
		


		 
		
		


		Average Interest Rate
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Demand deposits (interest bearing)
		
		


		 
		
		


		$
		
		


		1,183,317
		
		


		 
		
		


		0.15
		
		


		%
		
		


		 
		
		


		$
		
		


		603,033
		
		


		 
		
		


		0.64
		
		


		%
		
		


		 
		
		


		$
		
		


		180,953
		
		


		 
		
		


		1.95
		
		


		%
	
	
		
		


		Certificates of deposit (time deposits)
		
		


		 
		
		


		$
		
		


		7,686
		
		


		 
		
		


		2.82
		
		


		%
		
		


		 
		
		


		$
		
		


		20,104
		
		


		 
		
		


		3.36
		
		


		%
		
		


		 
		
		


		$
		
		


		36,287
		
		


		 
		
		


		4.41
		
		


		%
	
	
		
		


		Demand deposits (non-interest bearing)
		
		


		 
		
		


		$
		
		


		18,192
		
		


		 
		
		


		*
		
		


		 
		
		


		 
		
		


		$
		
		


		15,054
		
		


		 
		
		


		*
		
		


		 
		
		


		 
		
		


		$
		
		


		15,293
		
		


		 
		
		


		*
		
		

		 
	
	
		
		


		Savings accounts
		
		


		 
		
		


		$
		
		


		92
		
		


		 
		
		


		-
		
		


		%
		
		


		 
		
		


		$
		
		


		303
		
		


		 
		
		


		-
		
		


		%
		
		


		 
		
		


		$
		
		


		339
		
		


		 
		
		


		0.97
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		* Not applicable.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



Scheduled
maturities of certificates of deposit greater than $100,000 at December 31,
2010, were as follows (in thousands):


	
		
		


		 
		
		


		 
		
		


		0-3 Months
		
		


		 
		
		


		3-6 Months
		
		


		 
		
		


		6-12 Months
		
		


		 
		
		


		Over 12 Months
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		199
		
		


		 
		
		


		$
		
		


		493
		
		


		 
		
		


		$
		
		


		1,020
		
		


		 
		
		


		$
		
		


		1,712
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



55










VI. 
Return on Equity and Assets


	
		
		


		 
		
		


		 
		
		


		Year Ended December 31,
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


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


		 
		
		


		 
		
		


		0.05
		
		


		%
		
		


		 
		
		


		2.93
		
		


		%
		
		


		 
		
		


		3.32
		
		


		%
	
	
		
		


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


		 
		
		


		 
		
		


		0.18
		
		


		%
		
		


		 
		
		


		9.97
		
		


		%
		
		


		 
		
		


		11.10
		
		


		%
	
	
		
		


		Dividend payout ratio  (1)
		
		


		 
		
		


		 
		
		


		-
		
		


		%
		
		


		 
		
		


		-
		
		


		%
		
		


		 
		
		


		-
		
		


		%
	
	
		
		


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


		 
		
		


		 
		
		


		29.16
		
		


		%
		
		


		 
		
		


		29.35
		
		


		%
		
		


		 
		
		


		29.90
		
		


		%
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		(1)
		We did not declare or pay any dividends during 2010, 2009, or 2008.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	




VII.  Short-Term Borrowings



The
following is a summary of our short-term borrowings for the periods indicated 
(in thousands, except rates):


	
		
		


		 
		
		


		 
		
		


		Short-Term Borrowings
		
		


		 
		
		


		 
		
		


		Stock Loan
		
		


		 
	
	
		
		


		Year Ended December 31, 2010:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Amount outstanding at December 31, 2010
		
		


		 
		
		


		$
		
		


		109,600
		
		


		 
		
		


		 
		
		


		$
		
		


		27,907
		
		


		 
	
	
		
		


		Weighted average interest rate thereon
		
		


		 
		
		


		 
		
		


		1.05
		
		


		%
		
		


		 
		
		


		 
		
		


		0.26
		
		


		%
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Maximum amount outstanding at any month-end
		
		


		 
		
		


		$
		
		


		259,700
		
		


		 
		
		


		 
		
		


		$
		
		


		101,580
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Average amount outstanding during the year
		
		


		 
		
		


		$
		
		


		108,784
		
		


		 
		
		


		 
		
		


		$
		
		


		69,507
		
		


		 
	
	
		
		


		Weighted average interest rate thereon
		
		


		 
		
		


		 
		
		


		1.01
		
		


		%
		
		


		 
		
		


		 
		
		


		1.54
		
		


		%
	
	
		
		


		Year Ended December 31, 2009:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Amount outstanding at December 31, 2009
		
		


		 
		
		


		$
		
		


		90,800
		
		


		 
		
		


		 
		
		


		$
		
		


		16,667
		
		


		 
	
	
		
		


		Weighted average interest rate thereon
		
		


		 
		
		


		 
		
		


		1.04
		
		


		%
		
		


		 
		
		


		 
		
		


		0.33
		
		


		%
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Maximum amount outstanding at any month-end
		
		


		 
		
		


		$
		
		


		212,300
		
		


		 
		
		


		 
		
		


		$
		
		


		85,432
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Average amount outstanding during the year
		
		


		 
		
		


		$
		
		


		107,383
		
		


		 
		
		


		 
		
		


		$
		
		


		53,110
		
		


		 
	
	
		
		


		Weighted average interest rate thereon
		
		


		 
		
		


		 
		
		


		0.99
		
		


		%
		
		


		 
		
		


		 
		
		


		1.07
		
		


		%
	
	
		
		


		Year Ended December 31, 2008:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Amount outstanding at December 31, 2008
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		 
		
		


		$
		
		


		16,987
		
		


		 
	
	
		
		


		Weighted average interest rate thereon
		
		


		 
		
		


		 
		
		


		-
		
		


		%
		
		


		 
		
		


		 
		
		


		0.52
		
		


		%
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Maximum amount outstanding at any month-end
		
		


		 
		
		


		$
		
		


		265,300
		
		


		 
		
		


		 
		
		


		$
		
		


		162,888
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Average amount outstanding during the year
		
		


		 
		
		


		$
		
		


		132,660
		
		


		 
		
		


		 
		
		


		$
		
		


		105,424
		
		


		 
	
	
		
		


		Weighted average interest rate thereon
		
		


		 
		
		


		 
		
		


		2.28
		
		


		%
		
		


		 
		
		


		 
		
		


		2.47
		
		


		%
	
	


56










Results of
Operations - Institutional Group



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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended December 31,
		
		


		 
		
		


		Percentage



		Change  
		
		


		 
		
		


		 
		
		


		As a Percentage of



		Net Revenues



		for the Year Ended



		December 31,
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		2010 vs. 2009
		
		


		 
		
		


		2009 vs. 2008
		
		


		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
	
	
		
		

		

		Revenues:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Principal transactions
		
		


		 
		
		


		$
		
		


		217,770
		
		


		 
		
		


		$
		
		


		263,804
		
		


		 
		
		


		$
		
		


		168,707
		
		


		 
		
		


		(17.5)
		
		


		%
		
		


		56.4
		
		


		%
		
		


		 
		
		


		40.2
		
		


		%
		
		


		53.3
		
		


		%
		
		


		43.2
		
		


		%
	
	
		
		


		Commissions
		
		


		 
		
		


		 
		
		


		123,719
		
		


		 
		
		


		 
		
		


		111,469
		
		


		 
		
		


		 
		
		


		149,547
		
		


		 
		
		


		11.0
		
		


		 
		
		


		(25.5
		
		


		)
		
		


		 
		
		


		22.8
		
		


		 
		
		


		22.6
		
		


		 
		
		


		38.3
		
		


		 
	
	
		
		


		Capital raising
		
		


		 
		
		


		 
		
		


		108,473
		
		


		 
		
		


		 
		
		


		61,657
		
		


		 
		
		


		 
		
		


		29,690
		
		


		 
		
		


		75.9
		
		


		 
		
		


		107.7
		
		


		 
		
		


		 
		
		


		20.0
		
		


		 
		
		


		12.5
		
		


		 
		
		


		7.6
		
		


		 
	
	
		
		


		Advisory
		
		


		 
		
		


		 
		
		


		83,425
		
		


		 
		
		


		 
		
		


		49,244
		
		


		 
		
		


		 
		
		


		38,506
		
		


		 
		
		


		69.4
		
		


		 
		
		


		27.9
		
		


		 
		
		


		 
		
		


		15.4
		
		


		 
		
		


		10.0
		
		


		 
		
		


		9.9
		
		


		 
	
	
		
		


		Investment banking
		
		


		 
		
		


		 
		
		


		191,898
		
		


		 
		
		


		 
		
		


		110,901
		
		


		 
		
		


		 
		
		


		68,196
		
		


		 
		
		


		73.0
		
		


		 
		
		


		62.6
		
		


		 
		
		


		 
		
		


		35.4
		
		


		 
		
		


		22.5
		
		


		 
		
		


		17.5
		
		


		 
	
	
		
		


		Interest
		
		


		 
		
		


		 
		
		


		8,315
		
		


		 
		
		


		 
		
		


		9,847
		
		


		 
		
		


		 
		
		


		9,068
		
		


		 
		
		


		(15.6
		
		


		)
		
		


		8.6
		
		


		 
		
		


		 
		
		


		1.5
		
		


		 
		
		


		2.0
		
		


		 
		
		


		2.3
		
		


		 
	
	
		
		


		Other income
		
		


		 
		
		


		 
		
		


		4,255
		
		


		 
		
		


		 
		
		


		1,331
		
		


		 
		
		


		 
		
		


		1,439
		
		


		 
		
		


		219.7
		
		


		 
		
		


		(7.6
		
		


		)
		
		


		 
		
		


		0.8
		
		


		 
		
		


		0.3
		
		


		 
		
		


		0.3
		
		


		 
	
	
		
		

		

		Total revenues
		
		


		 
		
		


		 
		
		


		545,957
		
		


		 
		
		


		 
		
		


		497,352
		
		


		 
		
		


		 
		
		


		396,957
		
		


		 
		
		


		9.9
		
		


		 
		
		


		25.3
		
		


		 
		
		


		 
		
		


		100.7
		
		


		 
		
		


		100.7
		
		


		 
		
		


		101.6
		
		


		 
	
	
		
		


		Interest expense
		
		


		 
		
		


		 
		
		


		4,118
		
		


		 
		
		


		 
		
		


		3,260
		
		


		 
		
		


		 
		
		


		6,231
		
		


		 
		
		


		26.4
		
		


		 
		
		


		(47.7
		
		


		)
		
		


		 
		
		


		0.7
		
		


		 
		
		


		0.7
		
		


		 
		
		


		1.6
		
		


		 
	
	
		
		

		

		Net revenues
		
		


		 
		
		


		 
		
		


		541,839
		
		


		 
		
		


		 
		
		


		494,092
		
		


		 
		
		


		 
		
		


		390,726
		
		


		 
		
		


		9.8
		
		


		 
		
		


		26.5
		
		


		 
		
		


		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		


		 
		
		


		100.0
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Non-interest expenses:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Compensation and benefits
		
		


		 
		
		


		 
		
		


		315,329
		
		


		 
		
		


		 
		
		


		287,835
		
		


		 
		
		


		 
		
		


		233,679
		
		


		 
		
		


		9.6
		
		


		 
		
		


		23.2
		
		


		 
		
		


		 
		
		


		58.2
		
		


		 
		
		


		58.3
		
		


		 
		
		


		59.8
		
		


		 
	
	
		
		


		Occupancy and equipment rental
		
		


		 
		
		


		 
		
		


		19,663
		
		


		 
		
		


		 
		
		


		16,249
		
		


		 
		
		


		 
		
		


		14,194
		
		


		 
		
		


		21.0
		
		


		 
		
		


		14.5
		
		


		 
		
		


		 
		
		


		3.6
		
		


		 
		
		


		3.3
		
		


		 
		
		


		3.6
		
		


		 
	
	
		
		


		Communication and office supplies
		
		


		 
		
		


		 
		
		


		23,725
		
		


		 
		
		


		 
		
		


		18,540
		
		


		 
		
		


		 
		
		


		19,087
		
		


		 
		
		


		28.0
		
		


		 
		
		


		(2.9
		
		


		)
		
		


		 
		
		


		4.4
		
		


		 
		
		


		3.7
		
		


		 
		
		


		4.9
		
		


		 
	
	
		
		


		Commissions and floor brokerage
		
		


		 
		
		


		 
		
		


		14,402
		
		


		 
		
		


		 
		
		


		15,716
		
		


		 
		
		


		 
		
		


		8,806
		
		


		 
		
		


		(8.4
		
		


		)
		
		


		78.5
		
		


		 
		
		


		 
		
		


		2.7
		
		


		 
		
		


		3.2
		
		


		 
		
		


		2.3
		
		


		 
	
	
		
		


		Other operating expenses
		
		


		 
		
		


		 
		
		


		39,185
		
		


		 
		
		


		 
		
		


		26,619
		
		


		 
		
		


		 
		
		


		23,068
		
		


		 
		
		


		47.2
		
		


		 
		
		


		15.4
		
		


		 
		
		


		 
		
		


		7.2
		
		


		 
		
		


		5.4
		
		


		 
		
		


		5.9
		
		


		 
	
	
		
		

		

		Total non-interest expenses
		
		


		 
		
		


		 
		
		


		412,304
		
		


		 
		
		


		 
		
		


		364,959
		
		


		 
		
		


		 
		
		


		298,834
		
		


		 
		
		


		13.0
		
		


		 
		
		


		22.1
		
		


		 
		
		


		 
		
		


		76.1
		
		


		 
		
		


		73.9
		
		


		 
		
		


		76.5
		
		


		 
	
	
		
		

		

		Income before income taxes
		
		


		 
		
		


		$
		
		


		129,535
		
		


		 
		
		


		$
		
		


		129,133
		
		


		 
		
		


		$
		
		


		91,892
		
		


		 
		
		


		0.3
		
		


		%
		
		


		40.5
		
		


		%
		
		


		 
		
		


		23.9
		
		


		%
		
		


		26.1
		
		


		%
		
		


		23.5
		
		


		%
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



Year Ended
December 31, 2010 Compared With Year Ended December 31, 2009



NET
REVENUES



For the
year ended December 31, 2010, Institutional Group net revenues increased
9.8%
to $541.8
million from $494.1 million in 2009. The increase in net revenues is primarily
attributable to improved equity capital markets and our acquisition of TWPG on
July 1, 2010.






Principal transactions
- For the year ended December 31, 2010, principal transactions revenues
decreased 17.5%, to $217.8 million from $263.8 million in 2009. Principal
transactions revenues were negatively impacted by challenging fixed income
market conditions during 2010, which contributed to lower trading volumes and
the tightening of corporate bond spreads. Additionally, in the second half of
2010, investor concerns over credit risk continued, which led to wider credit
spreads and lower client activity in municipal products and reduced trading
performance.  The impact of the decline in our fixed income business was offset
by improved equity market conditions during the second half of 2010.





Commissions -  
For the
year ended December 31, 2010, commission revenues increased 11.0% to $123.7
million from $111.5 million in 2009. The increase is attributable to an increase
in trading volumes in equities over the prior year.



57











Investment banking -  
For the
year ended December 31, 2010, investment banking revenues increased 73.0% to
$191.9 million from $110.9 million in 2009. The increase is attributable to an
increase in equity financing revenues and advisory fee revenues from the prior
year and the acquisition of TWPG, which closed on July 1, 2010.  



For the
year ended December 31, 2010, capital-raising revenues increased 75.9% to $108.5
million from $61.7 million in 2009.



For the
year ended December 31, 2010, equity capital-raising revenues increased 96.0% to
$87.5 million from $44.6 million in 2009. The increase is primarily attributable
to an increase in the number of transactions in the current year. During the
year ended December 31, 2010, we were involved, as manager or co-manager, in 149
equity underwritings compared to 72 equity underwritings in 2009.  



For the
year ended December 31, 2010, fixed income capital-raising revenues increased
23.2%, to $21.0 million from $17.1 million in 2009. For the year ended December
31, 2010, we were involved, as manager or co-manager, in 564 tax-exempt issues
compared to 369 issues
in
2009.  



For the
year ended December 31, 2010, strategic advisory fees increased 69.4% to $83.4
million from $49.2 million in 2009. The increase is primarily attributable to an
increase in the number of completed equity transactions and the aggregate
transaction value from 2009.




Interest revenue -
For the year ended December 31, 2010, interest revenue decreased 15.6% to $8.3
million from $9.8 million in 2009. The decrease in interest revenues is
primarily attributable to decreased interest earned on our trading inventory
during 2010.  




Interest expense -  
For the
year ended December 31, 2010, interest expense increased 26.4% to $4.1 million
from $3.3 million in 2009.




NON-INTEREST EXPENSES 




For the
year ended December 31, 2010, Institutional Group non-interest expenses
increased
13.0%
to $412.3
million from $365.0 million in 2009.



Unless
specifically discussed below, the fluctuations in non-interest expenses were
primarily attributable to the continued growth of our Institutional Group
segment, primarily through the acquisition of TWPG on July 1, 2010. During the
year ended December 31, 2010, we added 403 revenue producers (investment
bankers, research, and traders) and support staff, including 219 from the TWPG
acquisition.




Compensation and benefits -  
For the
year ended December 31, 2010, compensation and benefits expense increased 9.6%
to $315.3 million from $287.8 million in 2009.
The
increase is principally due to increased compensation as a result of the
acquisition of TWPG on July 1, 2010, offset by the elimination of deferred
compensation expense as a result of the modification to our deferred
compensation plan, whereby we removed the service requirement, as previously
discussed.

Compensation and benefits expense as a percentage of net revenues decreased to
58.2% for the year ended December 31, 2010, compared to 58.3% in 2009. The change
in compensation and benefits expense as a percent of net revenues is primarily
attributable the increase in net revenues and profitability and, to a lesser
extent, the reduction in deferred compensation expense, offset by an increase in
compensation expense due to the acquisition of TWPG. 




Occupancy and equipment rental -  
For the
year ended December 31, 2010, occupancy and equipment rental expense increased
21.0% to $19.7 million from $16.2
million in 2009.




Communications and office supplies -  
For the
year ended December 31, 2010, communications and office supplies expense
increased 23.7% to $23.7 million from $18.5 million in 2009.




Commissions and floor brokerage -  
For the
year ended December 31, 2010, commissions and floor brokerage expense decreased
8.4% to $14.4 million from $15.7
million in 2009. The decrease is primarily attributable to
vendor
billing issues, resulting in higher than normal expense for the year ended
December 31, 2009.




 Other operating expenses -  
For the
year ended December 31, 2010, other operating expenses increased 47.2% to $39.2
million from $26.6
million in 2009. The increase is primarily attributable to merger-related costs
associated with the acquisition of TWPG, including approximately $3.0 million in
transaction costs.  

INCOME
BEFORE INCOME TAXES



For the
year ended December 31, 2010, income before
income taxes for the Institutional Group segment increased
0.3%,
to $129.5
million from $129.1 million in 2009.
Increased
non-interest expense resulting from the TWPG acquisition and decreased fixed
income institutional brokerage revenues and fixed income trading profits have
resulted in lower profit margins.



58










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



NET
REVENUES



For the
year ended December 31, 2009, Institutional Group net revenues increased 26.5%
to $494.1 million from $390.7 million in 2008.



The
increase in net revenues for the year ended December 31, 2009, over the prior
year was 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 2008. The
increase was primarily attributable to increased principal transactions,
primarily in corporate debt, OTC equity, mortgage-backed bonds, and municipal
debt due to turbulent markets and institutional customers returning to
traditional fixed income products.  




Commissions -
For the year ended December 31, 2009, commission revenues decreased 25.5% to
$111.5 million from $149.5 million in 2008. The volatility in capital markets
resulted in a decrease in trading volumes, as customers have returned to
traditional fixed income products.  




Investment banking -
For the year ended December 31, 2009, investment banking revenues increased
62.6% to $110.9 million from $68.2 million in 2008.  



For the
year ended December 31, 2009, capital-raising revenues increased $32.0 million,
or 107.7%, to $61.7 million from $29.7 million in 2008.



For the
year ended December 31, 2009, equity capital-raising revenues increased $22.7
million to $44.6 million from $21.9 million 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 in 2008, an
increase of 56.5% in the number of underwritings from the prior year.



For the
year ended December 31, 2009, fixed income capital-raising revenues increased
$9.3 million to $17.1 million from $7.8 million in 2008.  



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



For the
year ended December 31, 2009, strategic advisory fees increased 27.9% to $49.2
million from $38.5 million in 2008. The increase was primarily due to an
increase in the number of completed equity transactions and the aggregate
transaction value from the prior year.  




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




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 2008. The decrease was due to
decreased interest rates charged by banks on lower levels of borrowings to
finance firm inventory.  


59











NON-INTEREST EXPENSES 




For the
year ended December 31, 2009, Institutional Group non-interest expenses
increased 22.1% to $365.0 million from $298.8 million in 2008.



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




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




Compensation and benefits expense as a percentage of net revenues decreased to
58.3% for the year ended December 31, 2009, compared to 59.8% in 2008. The
decrease in compensation and benefits expense as a percent of net revenues was
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 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 in 2008.




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




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



INCOME
BEFORE INCOME TAXES



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



60











Results of Operations - Other Segment



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


	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		For the Year Ended December 31,
		
		


		 
		
		


		 
		
		


		As a Percentage of



		Net Revenues



		for the Year Ended



		December 31,
	
	
		
		

		

		 
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
		
		


		 
		
		


		2010 vs. 2009
		
		


		 
		
		


		2009 vs. 2008
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Net revenues
		
		


		 
		
		


		$
		
		


		(3,082
		
		


		)
		
		


		$
		
		


		570
		
		


		 
		
		


		$
		
		


		5,759
		
		


		 
		
		


		 
		
		


		*
		
		


		%
		
		


		(90.1
		
		


		) %
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Non-interest expenses:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Compensation and benefits
		
		


		 
		
		


		 
		
		


		237,417
		
		


		 
		
		


		 
		
		


		60,124
		
		


		 
		
		


		 
		
		


		59,892
		
		


		 
		
		


		 
		
		


		294.9
		
		


		 
		
		


		0.4
		
		


		 
	
	
		
		


		Other operating expenses
		
		


		 
		
		


		 
		
		


		83,288
		
		


		 
		
		


		 
		
		


		53,864
		
		


		 
		
		


		 
		
		


		46,934
		
		


		 
		
		


		 
		
		


		54.6
		
		


		 
		
		


		14.8
		
		


		 
	
	
		
		

		

		Total non-interest expenses
		
		


		 
		
		


		 
		
		


		320,705
		
		


		 
		
		


		 
		
		


		113,988
		
		


		 
		
		


		 
		
		


		106,826
		
		


		 
		
		


		 
		
		


		181.4
		
		


		 
		
		


		6.7
		
		


		 
	
	
		
		

		

		Loss before income taxes
		
		


		 
		
		


		$ 
		
		


		(323,787
		
		


		)
		
		


		$ 
		
		


		(113,418
		
		


		)
		
		


		$
		
		


		(101,067
		
		


		)
		
		


		 
		
		


		185.5
		
		


		% 
		
		


		12.2
		
		


		  %
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		* Percentage is not meaningful.
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



Year Ended
December 31, 2010 Compared With Year Ended December 31, 2009



Net
revenues -
For the year ended December 31, 2010, net revenues decreased $3.7 million from
the prior year. The decrease in net revenues for the year ended December 31,
2010, is primarily attributable
to an
increase in investment losses. In addition, we recorded an impairment charge of
$0.9
million on a held-to-maturity investment during 2010 due to an
other-than-temporary decline in value. The decrease in net revenues is offset by
the recognition of a $2.1 million gain on the conversion of our seat membership
on the Chicago Board Options Exchange to shares in conjunction with its initial
public offering during the second quarter of 2010.  




Compensation and benefits -  
For the
year ended December 31, 2010, compensation and benefits expense increased $177.3
million to $237.4 million from $60.1 million in 2009.
The
increase is primarily attributable to an increase in
deferred
compensation expense due to
the
modification of our deferred compensation plan. We accelerated all unvested
deferred compensation as a result of the plan modification resulting in a
non-cash, pre-tax charge of $179.5 million.




Other operating expenses -  
For the
year ended December 31, 2010, other operating expenses increased
14.8%
to $83.3
million from $53.9 million in 2009. The increase is primarily attributable to
the continued growth in all segments during 2010, which included merger-related
expenses of $19.0 million related to our acquisition of TWPG. In addition, the
growth of our company contributed to increased SIPC assessments, securities
processing fees, travel and promotion, and legal expenses. The increase in legal
expenses is attributable to an increase in the number of customer claims arising
from volatile market conditions. We are subject to various proceedings and
claims arising primarily from our securities business activities, including
lawsuits, arbitration claims, class actions, and regulatory matters.



61










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



Net
revenues -
For the year ended December 31, 2009, net revenues decreased 90.1% to $0.6
million from $5.7 million in 2008. The decrease in net revenues was primarily
attributable to a $6.5 million decrease in net interest revenues to $0.8 million
in 2009 as a result of decreased interest charged for short-term borrowings,
offset by
the
reduction of investment losses during the year ended December 31, 2009.
In addition, we recorded
an
impairment charge of $1.9 million on a held-to-maturity investment during 2009
due to an other-than-temporary decline in value.




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



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



The
increase was 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
was attributable to an increase in litigation associated with the ongoing
investigations in connection with ARS and an increase in the number of claims
and litigation costs to defend industry recruitment claims.



62










Analysis
of Financial Condition



Our
company's consolidated statements of financial condition consist primarily of
cash and cash equivalents, receivables, trading inventory, bank loans,
investments, goodwill, loans and advances to financial advisors, bank deposits,
and payables. Total assets of $4.2 billion at December 31, 2010, were up 33.0%
over December 31, 2009. The increase is primarily attributable to increased
receivables, trading inventory, financial instruments, loans and advances to
financial advisors and the recognition of goodwill associated with our
acquisition of TWPG. 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 TWPG.



As of
December 31, 2010, our liabilities were comprised primarily of short-term
borrowings of $109.6 million, deposits of $1.6 billion at Stifel Bank, and
payables to customers, and brokers, dealers and clearing organizations of $212.6
million and $114.9 million, respectively, at our broker-dealer subsidiaries, as
well as accounts payable and accrued expenses, and accrued employee compensation
of $404.9 million. To meet our obligations to clients and operating needs, we
had $253.5 million in cash at December 31, 2010. We also had client brokerage
receivables of $477.5 million and $476.1 million in loans at Stifel Bank.



Liquidity
and Capital Resources



Management
of Our Liquidity



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



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



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



We have an
ongoing authorization, as amended, from the Board of Directors to repurchase our
common stock in the open market or in negotiated transactions. On August 3,
2010, the Board authorized the repurchase of an additional 2,000,000 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, 2010, we are permitted to
buy an additional 2,038,517

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.



63










Cash Flow



Cash and
cash equivalents increased $91.7 million to $253.5 million at December 31, 2010,
from $161.8 million at December 31, 2009. Operating activities provided $142.2
million of cash primarily due to an increase in operating assets and liabilities
offset by the net effect of non-cash expenses. Investing activities used cash of
$568.0 million due to purchases of available-for-sale and held-to-maturity
securities as part of our investment strategy at Stifel Bank,  purchases of
eligible ARS from our customers as part of our voluntary repurchase plan, and
fixed asset purchases, offset by proceeds from the maturity of
available-for-sale securities, sale of investments, and bank customer loan
repayments. During the year ended December 31, 2010, we purchased $27.7 million
in fixed assets, consisting primarily of information technology equipment,
leasehold improvements, and furniture and fixtures. Financing activities
provided cash of $515.8 million principally due to the increase in affiliated
deposits as a result of organic growth and the acquisition of the UBS Acquired
Locations, and proceeds received from bank borrowings, offset by repurchases of
our common stock and the repayment of two senior notes held by TWPG after the
close of the merger.



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
$253.5 million of cash and cash equivalents at December 31, 2010, compared to
$161.8 million at December 31, 2009. Cash and cash equivalents provide immediate
sources of funds to meet our liquidity needs.



Securities
Available-for-Sale



We held
$1.0 billion in available-for-sale investment securities at December 31, 2010,
compared to $578.5 million at December 31, 2009. As of December 31, 2010, the
weighted average life of the investment securities portfolio was approximately
3.67 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 we will be required to sell the security before its anticipated
recovery. We continually monitor the ratings of our 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, 2010, we had $1.6 billion in deposits compared to $1.0 billion at
December 31, 2009. The growth in deposits is primarily attributable to the
increase in brokerage deposits held by the bank and the UBS Acquired Location
acquisition. Our core deposits are comprised of non-interest-bearing deposits,
money market deposit accounts, savings accounts, and CDs.  


Short-term borrowings



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
customer-owned securities is not reflected on our consolidated statements of
financial condition. We maintain available ongoing credit arrangements with
banks that provided a peak daily borrowing of $313.5 million during the year
ended December 31, 2010. There are no compensating balance requirements under
these arrangements. At December 31, 2010, short-term borrowings from banks were
$109.6 million at an average rate of 1.05%, which were collateralized by
company-owned securities valued at $162.6 million. 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.
The average bank borrowing was $108.8 million, $107.4 million, and $132.7
million during the years ended December 31, 2010, 2009, and 2008, respectively,
at weighted average daily interest rates of 1.01%, 0.99%, and 2.28%,
respectively.



64










At
December 31, 2010 and 2009, Stifel Nicolaus had a stock loan balance of $27.9
million and $16.7 million, respectively, at weighted average daily interest
rates of 0.26% and 0.33%, respectively. The average outstanding securities
lending arrangements utilized in financing activities were $69.5 million, $53.1
million, and $105.4 million during the years ended December 31, 2010, 2009, and
2008, respectively, at weighted average daily effective interest rates of 1.54%,
1.07%, and 2.47%, 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.




Unsecured
short-term borrowings



On
September 8, 2010, we entered into an unsecured line of credit with two lenders
totaling $50.0 million. We can draw upon this line, as long as certain
restrictive covenants are maintained. At December 31, 2010, we had no advances
against this line of credit.



Federal
Home Loan Bank Advances and other secured financing



Stifel
Bank has borrowing capacity with the Federal Home Loan Bank of $156.1 million at
December 31, 2010, all of which was unused, and a $5.0 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 $1.6 billion at December 31, 2010.



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



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



Use of
Capital Resources



On
December 28, 2009, we announced that Stifel Nicolaus had reached an agreement
between the State of Missouri, the State of Indiana, the State of Colorado, and
with an association of other State securities regulatory authorities regarding
the repurchase of ARS from Eligible ARS investors. As part of the modified ARS
repurchase offer, we have accelerated the previously announced repurchase plan.
We have agreed to repurchase ARS from Eligible ARS investors in four phases
starting in January 2010 and ending on December 31, 2011. During 2010, we
repurchased $39.2 million of ARS at par. At December 31, 2010, we estimate that
our retail clients held $64.5 million of eligible ARS after issuer redemptions
of $38.4 million and Stifel repurchases of $81.7 million. See Item 3, "Legal
Proceedings," for further details regarding ARS claims.


65










We utilize
transition pay, principally in the form of upfront demand notes, to financial
advisors and certain key revenue producers as part of our overall growth
strategy. The initial value of the notes is determined primarily by the
financial advisors' trailing production and assets under management. These notes
are generally forgiven over a five- to ten-year period based on production.  The
future estimated amortization expense of the upfront notes, assuming current
year production levels and static growth for the years ended December 31, 2011,
2012, 2013, 2014, 2015, and thereafter are $51.3 million, $39.4 million, $29.7
million, $20.1 million, and $39.1 million, respectively. These estimates could
change if we continue to grow our business through expansion or experience
increased production levels.  



The
following table summarizes the activity related to our company's demand note
receivable from January 1, 2009 to December 31, 2010 (in thousands):


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		December 31,
		

		
		

		2010
		
		


		 
		
		


		December 31,



		 2009
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Beginning balance
		
		


		 
		
		


		$ 
		
		


		185,123
		
		


		 
		
		


		$

		


		 
		
		


		105,767
		
		


		 
	
	
		
		


		Notes issued - organic growth
		
		


		 
		
		


		 
		
		


		39,777
		
		


		 
		
		


		 
		
		


		81,953
		
		


		 
	
	
		
		


		Notes issued - acquisitions  (1)
		
		


		 
		
		


		 
		
		


		4,681
		
		


		 
		
		


		 
		
		


		31,659
		
		


		 
	
	
		
		


		Amortization
		
		


		 
		
		


		 
		
		


		(50,162
		
		


		)
		
		


		 
		
		


		(33,407
		
		


		)
	
	
		
		


		Other  
		
		


		 
		
		


		 
		
		


		1,938
		
		


		 
		
		


		 
		
		


		(849
		
		


		)
	
	
		
		


		Ending balance
		
		


		 
		
		


		$
		
		


		181,357
		
		


		 
		
		


		$
		
		


		185,123
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		(1) 
		
		

		Notes issued in conjunction with the acquisitions of TWPG in 2010 and
		the UBS Acquired Locations and Butler Wick in 2009, respectively.
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



We have
paid $44.5 million in the form of upfront notes to financial advisors for
transition pay during the year ended December 31, 2010. As we continue to take
advantage of the opportunities created by market displacement and as competition
for skilled professionals in the industry increases, we may decide to devote
more significant resources to attracting and retaining qualified personnel.





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 effect to our company by limiting our operations that require intensive
use of capital, such as underwriting or trading activities, or limit our ability
to implement our business and growth strategies, pay interest on and repay the
principal of our debt, and/or repurchase our common stock. Our non-broker-dealer
subsidiary, Stifel Bank is also subject to various regulatory capital
requirements administered by the federal banking agencies.



At
December 31, 2010, Stifel Nicolaus had net capital of $180.5 million, which was
30.8% of its aggregate debit items and $168.8 million in excess of its minimum
required net capital.
At December 31, 2010, CSA's and TWP's net capital exceeded the minimum net
capital required under the SEC rule.
At
December 31, 2010, SN Ltd's and TWPIL's net capital and reserves were in excess
of the financial resources requirement under the rules of the FSA.
At
December 31, 2010, SN Canada's net capital and reserves was in excess of the
financial resources requirement under the rules of the IIROC.
At
December 31, 2010, Stifel Bank was considered well capitalized under the
regulatory framework for prompt corrective action. See Note 20 of the Notes to
Consolidated Financial Statements for details of our regulatory capital
requirements.


66










Critical
Accounting Policies and Estimates



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



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



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



Valuation
of Financial Instruments



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



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



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



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



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



For
investments in illiquid or privately held securities that do not have readily
determinable fair values, the determination of fair value requires us to
estimate the value of the securities using the best information available.

Among the factors we consider in determining the fair value of investments are
the cost of the investment, terms and liquidity, developments since the
acquisition of the investment, the sales price of recently issued securities,
the financial condition and operating results of the issuer, earnings trends and
consistency of operating cash flows, the long-term business potential of the
issuer, the quoted market price of securities with similar quality and yield
that are publicly traded, and other factors generally pertinent to the valuation
of investments.
In
instances where a security is subject to transfer restrictions, the value of the
security is based primarily on the quoted price of a similar security without
restriction but may be reduced by an amount estimated to reflect such
restrictions.
The fair
value of these investments is subject to a high degree of volatility and may be
susceptible to significant fluctuation in the near term, and the differences
could be material.



67










We have
categorized our financial instruments measured at fair value into a three-level
classification in accordance with ASC 820, "Fair Value Measurement and
Disclosures." Fair value measurements of financial instruments that use quoted
prices in active markets for identical assets or liabilities are generally
categorized as Level 1, and fair value measurements of financial instruments
that have no direct observable levels are generally categorized as Level 3. All
other fair value measurements of financial instruments that do not fall within
the Level 1 or Level 3 classification are considered Level 2. 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 3 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 3 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, investments in private equity funds, and auction rate securities for
which the market has been dislocated and largely ceased to function. Our Level 3
asset-backed securities are valued using cash flow models that utilize
unobservable inputs. Level 3 corporate bonds are valued using prices from
comparable securities. Equity securities with unobservable inputs are valued
using management's best estimate of fair value, where the inputs require
significant management judgment. Auction rate securities are valued based upon
our expectations of issuer redemptions and using internal models.



At
December 31, 2010, Level 3 assets for which we bear economic exposure were
$173.5 million, or 10.5% of the total assets measured at fair value. During the
year ended December 31, 2010, we recorded net purchases of $100.2 million of
Level 3 assets. Our valuation adjustments (realized and unrealized) increased
the value of our Level 3 assets by $7.8 million. During 2010, we continued
repurchasing eligible ARS from our customers as part of our voluntary repurchase
plan, which have been classified as Level 3 assets at December 31, 2010.



At
December 31, 2009, Level 3 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 3
assets. Our valuation adjustments (realized and unrealized) reduced the value of
our Level 3 assets by $3.9 million. In June 2009, we began repurchasing eligible
ARS from our customers as part of our voluntary repurchase plan, which have been
classified as Level 3 assets at December 31, 2009.




At
December 31, 2010, Level 3 assets included the following: $94.8 million of
auction rate securities and $78.7 million of private equity and other fixed
income securities.




Investments in Partnerships




Investments in partnerships and other investments include our general and
limited partnership interests in investment partnerships and direct investments
in non-public companies. These interests are carried at estimated fair value.
The net assets of investment partnerships consist primarily of investments in
non-marketable securities. The underlying investments held by such partnerships
and direct investments in non-public companies are valued based on estimated
fair value ultimately determined by us in our capacity as general partner or
investor and, in the case of an investment in an unaffiliated investment
partnership, are based on financial statements prepared by an unaffiliated
general partner. Due to the inherent uncertainty of valuation, fair values of
these non-marketable investments may differ from the values that would have been
used had a ready market existed for these investments, and the differences could
be material. Increases and decreases in estimated fair value are recorded based
on underlying information of these non-public company investments, including
third-party transactions evidencing a change in value, market comparables,
operating cash flows and financial performance of the companies, trends within
sectors and/or regions, underlying business models, expected exit timing and
strategy, and specific rights or terms associated with the investment, such as
conversion features and liquidation preferences. In cases where an estimate of
fair value is determined based on financial statements prepared by an
unaffiliated general partner, such financial statements are generally unaudited
other than audited year-end financial statements. Upon receipt of audited
financial statements from an investment partnership, we adjust the fair value of
the investments to reflect the audited partnership results if they differ from
initial estimates. We also perform procedures to evaluate fair value estimates
provided by unaffiliated general partners. At December 31, 2010, we had
commitments to invest in affiliated and unaffiliated investment partnerships of
$4.6 million. These commitments are generally called as investment opportunities
are identified by the underlying partnerships. These commitments may be called
in full at any time.



68










The
investment partnerships in which we are general partner may allocate carried
interest and make carried interest distributions, which represent an additional
allocation of net realized and unrealized gains to the general partner if the
partnerships' investment performance reaches a threshold as defined in the
respective partnership agreements. These allocations are recognized in revenue
as realized and unrealized gains and losses on investments in partnerships. Our
recognition of allocations of carried interest gains and losses from the
investment partnerships in revenue is not adjusted to reflect expectations about
future performance of the partnerships.



As the
investment partnerships realize proceeds from the sale of their investments,
they may make cash distributions as provided for in the partnership agreements.
Distributions that result from carried interest may subsequently become subject
to claw back if the fair value of private equity partnership assets subsequently
decreases in fair value. To the extent these decreases in fair value and
allocated losses exceed our capital account balance, a liability is recorded by
us. These liabilities for claw back obligations are not required to be paid to
the investment partnerships until the dissolution of such partnerships, and are
only required to be paid if the cumulative amounts actually distributed exceed
the amount due based on the cumulative operating results of the partnerships.





We earn
fees from the investment partnerships that we manage or of which we are a
general partner. Such management fees are generally based on the net assets or
committed capital of the underlying partnerships. We have agreed, in certain
cases, to waive management fees, in lieu of making a cash contribution, in
satisfaction of our general partner investment commitments to the investment
partnerships. In these cases, we generally recognize our management fee revenues
at the time when we are allocated a special profit interest in realized gains
from these partnerships.




Contingencies



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



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



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



69










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




Derivative Instruments and Hedging Activities



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



Income
Taxes



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



Topic 740
("Topic 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, Topic 740 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition.



Goodwill
and Intangible Assets



Under the
provisions of ASC 805, "Business Combinations," we record all assets and
liabilities acquired in purchase acquisitions, including goodwill and other
intangible assets, at fair value. Determining the fair value of assets and
liabilities requires certain estimates. At December 31, 2010, we had goodwill of
$301.9 million and intangible assets of $34.6 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 as well as identified intangible assets and goodwill to
reporting units and comparing the fair value of each reporting unit to its
carrying amount. If the fair value is less than the carrying amount, a further
test is required to measure the amount of the impairment. We have elected to
test for goodwill impairment in the third quarter of each calendar year. The
results of the impairment test performed as of July 31, 2010, our last annual
measurement date, did not indicate any impairment.



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




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



70










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
23
of
the Notes to Consolidated Financial Statements. Such information is hereby
incorporated by reference.



Dilution



As of
December 31, 2010, there were 726,210 shares of our common stock issuable on
outstanding options, with an average weighted exercise price of $13.36, and
9,445,071 outstanding stock unit grants, with each unit representing the right
to receive shares of our common stock at a designated time in the future. The
restricted stock units vest on an annual basis over the next three to eight
years and are distributable, if vested, at future specified dates. Of the
outstanding restricted stock unit awards, 8,985,748 shares are currently vested
and 459,323 are unvested. Assuming vesting requirements are met, the Company
anticipates that 1,685,268 shares under these awards will be distributed in
2011, 1,665,106 will be distributed in 2012, 2,580,269 will be distributed in
2013, and the balance of 3,514,428 will be distributed thereafter.  



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



71









Contractual Obligations



The
following table sets forth our contractual obligations to make future payments
as of December 31, 2010 (in thousands):


	
		
		


		 
		
		


		Total
		
		


		 
		
		


		2011
		
		


		 
		
		


		2012
		
		


		 
		
		


		2013
		
		


		 
		
		


		2014
		
		


		 
		
		


		2015
		
		


		 
		
		


		Thereafter
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Debenture to Stifel Financial Capital Trust II  
		(1)
		
		


		$
		
		


		35,000
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		35,000
	
	
		
		


		Interest on debenture  (1)
		
		


		 
		
		


		55,267
		
		


		 
		
		


		 
		
		


		2,233
		
		


		 
		
		


		 
		
		


		2,233
		
		


		 
		
		


		 
		
		


		2,233
		
		


		 
		
		


		 
		
		


		2,233
		
		


		 
		
		


		 
		
		


		2,233
		
		


		 
		
		


		 
		
		


		44,102
	
	
		
		


		Debenture to Stifel Financial Capital Trust III  
		(2)
		
		


		 
		
		


		35,000
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		35,000
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
	
	
		
		


		Interest on debenture  (2)
		
		


		 
		
		


		62,383
		
		


		 
		
		


		 
		
		


		2,377
		
		


		 
		
		


		 
		
		


		2,377
		
		


		 
		
		


		 
		
		


		2,377
		
		


		 
		
		


		 
		
		


		2,377
		
		


		 
		
		


		 
		
		


		2,377
		
		


		 
		
		


		 
		
		


		50,498
	
	
		
		


		Debenture to Stifel Financial Capital Trust IV  
		(3)
		
		


		 
		
		


		12,500
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		12,500
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
	
	
		
		


		Interest on debenture  (3)
		
		


		 
		
		


		22,876
		
		


		 
		
		


		 
		
		


		848
		
		


		 
		
		


		 
		
		


		848
		
		


		 
		
		


		 
		
		


		848
		
		


		 
		
		


		 
		
		


		848
		
		


		 
		
		


		 
		
		


		848
		
		


		 
		
		


		 
		
		


		18,636
	
	
		
		


		Operating leases
		
		


		 
		
		


		293,015
		
		


		 
		
		


		 
		
		


		58,420
		
		


		 
		
		


		 
		
		


		53,901
		
		


		 
		
		


		 
		
		


		44,640
		
		


		 
		
		


		 
		
		


		38,988
		
		


		 
		
		


		 
		
		


		34,145
		
		


		 
		
		


		 
		
		


		62,921
	
	
		
		


		Commitments to extend credit - Stifel Bank  
		(4)
		
		


		 
		
		


		213,747
		
		


		 
		
		


		 
		
		


		150,576
		
		


		 
		
		


		 
		
		


		7,771
		
		


		 
		
		


		 
		
		


		23,239
		
		


		 
		
		


		 
		
		


		21,984
		
		


		 
		
		


		 
		
		


		336
		
		


		 
		
		


		 
		
		


		9,841
	
	
		
		


		ARS repurchase plan  
		(5)
		
		


		 
		
		


		64,250
		
		


		 
		
		


		 
		
		


		64,250
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
	
	
		
		


		 
		
		


		$
		
		


		794,038
		
		


		 
		
		


		$
		
		


		278,704
		
		


		 
		
		


		$
		
		


		114,630
		
		


		 
		
		


		$
		
		


		73,337
		
		


		 
		
		


		$
		
		


		66,430
		
		


		 
		
		


		$
		
		


		39,939
		
		


		 
		
		


		$
		
		


		220,998
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	



(1) 
Debenture
to Stifel Financial Capital Trust II is callable at par no later than September
30, 2035. The interest is 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) 
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.



(5) 
Stifel
Nicolaus' modified ARS repurchase plan, wherein 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. Issuer redemptions have been at par, and we expect this to
continue.



The
contractual obligations table excludes uncertain tax position liabilities of
$3.1 million, because we cannot make a reliable estimate of the timing of cash
payments.



72










ITEM
7A.   

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Risk
Management



Risks are
an inherent part of our business and activities. Management of these risks is
critical to our soundness and profitability. Risk management at our company is a
multi-faceted process that requires communication, judgment, and knowledge of
financial products and markets. Our senior management group takes an active role
in the risk management process and requires specific administrative and business
functions to assist in the identification, assessment, monitoring, and control
of various risks. The principal risks involved in our business activities are:
market (interest rates and equity prices), credit, operational, and regulatory
and legal.
We have
adopted policies and procedures concerning risk management, and our Board of
Directors, in exercising its oversight of management's activities, conducts
periodic reviews and discussions with management regarding the guidelines and
policies governing the processes by which risk assessment and risk management
are handled.



Market
Risk



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



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



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



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



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



Interest
Rate Risk



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



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




Additionally, we monitor, on a daily basis, the Value-at-Risk ("VaR") in our
trading portfolios using a ten-day horizon and report VaR at a 99% 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 unusually 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.  



73










The
following table sets forth the high, low, and daily average VaR for our trading
portfolios during the year ended December 31, 2010, and the daily VaR at
December 31, 2010 and 2009 (in thousands):


	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		Year Ended December 31, 2010
		
		


		 
		
		


		VaR calculation at
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		High
		
		


		 
		
		


		Low
		
		


		 
		
		


		 
		
		


		Daily

		Average
		
		


		 
		
		


		December 31,
		

		2010
		
		


		 
		
		


		December 31,
		

		2009
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Daily VaR
		
		


		 
		
		


		$
		
		


		15,027
		
		


		 
		
		


		$
		
		


		1,894
		
		


		 
		
		


		$ 
		
		


		6,145
		
		


		 
		
		


		 
		
		


		$
		
		


		8,043
		
		


		 
		
		


		$
		
		


		3,277
		
		


		 
	



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



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



The
following table illustrates the estimated change in net interest margin at
December 31, 2010, 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
			
			


			 
			
			


			57.8
			
			


			% 
		
		
			
			


			+100
			
			


			 
			
			


			29.3
			
			


			%
		
		
			
			


			0
			
			


			 
			
			


			0.00%
			
			


			 
		
		
			
			


			-100
			
			


			 
			
			


			n/a
			
			


			 
		
		
			
			


			-200
			
			


			 
			
			


			n/a
			
			


			 
		
		
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
	




74










The
following GAP Analysis table indicates Stifel Bank's interest rate sensitivity
position at December 31, 2010 (in thousands):



	
		
			
			

			

			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			

			

			 
			
			


			 
			
			


			Repricing Opportunities
			
			


			 
		
		
			
			

			

			 
			
			


			 
			
			


			0-6 Months
			
			


			 
			
			


			7-12 Months
			
			


			 
			
			


			1-5 Years
			
			


			 
			
			


			5+ Years
			
			


			 
		
		
			
			

			

			Interest-earning assets:
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Loans
			
			


			 
			
			


			$
			
			


			438,830
			
			


			 
			
			


			$
			
			


			23,032
			
			


			 
			
			


			$
			
			


			31,990
			
			


			 
			
			


			$
			
			


			2,744
			
			


			 
		
		
			
			


			Securities
			
			


			 
			
			


			 
			
			


			286,851
			
			


			 
			
			


			 
			
			


			108,387
			
			


			 
			
			


			 
			
			


			444,656
			
			


			 
			
			


			 
			
			


			214,810
			
			


			 
		
		
			
			


			Interest-bearing cash
			
			


			 
			
			


			 
			
			


			198,053
			
			


			 
			
			


			 
			
			


			-
			
			


			 
			
			


			 
			
			


			-
			
			


			 
			
			


			 
			
			


			-
			
			


			 
		
		
			
			

			

			 
			
			


			 
			
			


			$ 
			
			


			923,734
			
			


			 
			
			


			$ 
			
			


			131,419
			
			


			 
			
			


			$
			
			


			476,646
			
			


			 
			
			


			$
			
			


			217,554
			
			


			 
		
		
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Interest-bearing liabilities:
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
		
			
			


			Transaction accounts and savings
			
			


			 
			
			


			$ 
			
			


			280,044
			
			


			 
			
			


			$
			
			


			252,375
			
			


			 
			
			


			$
			
			


			948,401
			
			


			 
			

			$
			
			


			143,758
			
			


			 
		
		
			
			


			Certificates of deposit
			
			


			 
			
			


			 
			
			


			294
			
			


			 
			
			


			 
			
			


			596
			
			


			 
			
			


			 
			
			


			1,788
			
			


			 
			
			


			 
			
			


			-
			
			


			 
		
		
			
			

			

			 
			
			


			 
			
			


			$
			
			


			280,338
			
			


			 
			
			


			$
			
			


			252,971
			
			


			 
			
			


			$
			
			


			950,189
			
			


			 
			
			


			$
			
			


			143,758
			
			


			 
		
		
			
			


			GAP
			
			


			 
			
			


			 
			
			


			643,396
			
			


			 
			
			


			 
			
			


			(121,552
			
			


			) 
			
			


			 
			
			


			(473,543
			
			


			)
			
			


			 
			
			


			73,796
			
			


			 
		
		
			
			


			Cumulative GAP
			
			


			 
			
			


			$
			
			


			643,396
			
			


			 
			
			


			$
			
			


			521,844
			
			


			 
			
			


			$
			
			


			48,301
			
			


			 
			
			


			$
			
			


			122,097
			
			


			 
		
		
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
			
			


			 
		
	





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



Equity
Price Risk



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



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



75










Credit
Risk



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



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



We have
accepted collateral in connection with resale agreements, securities borrowed
transactions, and customer margin loans. Under many agreements, we are permitted
to sell or repledge these securities held as collateral and use these securities
to enter into securities lending arrangements or to deliver to counterparties to
cover short positions. At December 31, 2010, the fair value of securities
accepted as collateral where we are permitted to sell or repledge the securities
was $864.7 million, and the fair value of the collateral that had been sold or
repledged was $109.6 million.




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



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



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



76











Operational Risk




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



Regulatory
and Legal Risk



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



Effects of
Inflation



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



77










ITEM 8. 
 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 



INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS


	
		
		


		Report of Independent Registered Public Accounting Firm
		
		

		79
	
	
		
		


		Consolidated Statements of Financial Condition  
		
		
80
	
	
		
		


		Consolidated Statements of Operations
		
		
82
	
	
		
		


		Consolidated Statements of Changes in Shareholders' Equity
		 
		
		
83
	
	
		
		


		Consolidated Statements of Cash Flows
		
		
85
	
	
		
		


		Notes to the Consolidated Financial Statements
		
		
 
	
	
		
		


		Note 1    Nature of Operation and Basis of Presentation
		
		
88
	
	
		
		


		Note 2    Summary of Significant Accounting Policies
		
		
89
	
	
		
		


		Note 3    Acquisitions
		
		
97
	
	
		
		


		Note 4    Sale of Bank Branch
		
		
99
	
	
		
		


		Note 5    Receivables From and Payables to Brokers, Dealers, and
		Clearing Organizations
		
		
99
	
	
		
		


		Note 6    Fair Value of Financial Instruments
		
		
100
	
	
		
		


		Note 7    Trading Securities Owned and Trading Securities Sold, But Not
		Yet Purchased
		
		
108
	
	
		
		


		Note 8    Available-for-Sale and Held-to-Maturity Securities
		
		
109
	
	
		
		


		Note 9    Bank Loans
		
		
112
	
	
		
		


		Note 10  Fixed Assets
		
		
113
	
	
		
		


		Note 11  Goodwill and Intangible Assets
		
		
114
	
	
		
		


		Note 12  Short-Term Borrowings
		
		
115
	
	
		
		


		Note 13  Bank Deposits
		
		
116
	
	
		
		


		Note 14  Federal Home Loan Bank Advances
		
		
117
	
	
		
		


		Note 15  Debentures to Stifel Financial Capital Trusts
		
		
117
	
	
		
		


		Note 16  Derivative Instruments and Hedging Activities
		
		
118
	
	
		
		


		Note 17  Liabilities Subordinated to Claims of General Creditors
		
		
121
	
	
		
		


		Note 18  Commitments, Guarantees, and Contingencies
		
		
121
	
	
		
		


		Note 19  Legal Proceedings
		
		
123
	
	
		
		


		Note 20  Regulatory Capital Requirements
		
		
124
	
	
		
		


		Note 21  Employee Incentive, Deferred Compensation, and Retirement Plans
		
		
126
	
	
		
		


		Note 22  Restructuring
		
		
129
	
	
		
		


		Note 23  Off-Balance Sheet Credit Risk
		
		
130
	
	
		
		


		Note 24  Income Taxes
		
		
132
	
	
		
		


		Note 25  Segment Reporting
		
		
135
	
	
		
		


		Note 26  Other Comprehensive Income
		
		
138
	
	
		
		


		Note 27  Earnings Per Share
		
		
138
	
	
		
		


		Note 28  Shareholders' Equity
		
		
139
	
	
		
		


		Note 29  Variable Interest Entities
		
		
140
	
	
		
		


		Note 30  Subsequent Events
		
		
141
	
	
		
		


		Note 31  Quarterly Financial Information (Unaudited)
		
		
142
	
	



78












 



Report
of Independent Registered Public Accounting Firm




               
 



The Board
of Directors and Shareholders of Stifel Financial Corp.



We have
audited the accompanying consolidated statements of financial condition of
Stifel Financial Corp. (the "Company") as of December 31, 2010 and 2009, and the
related consolidated statements of operations, changes in shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
2010. 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, 2010 and 2009, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2010, in conformity with U.S. generally accepted accounting principles.





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, 2010, 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 28, 2011, expressed an unqualified
opinion thereon.



 



/s/ Ernst
& Young LLP



 



Chicago,
Illinois



February
28, 2011 



79










STIFEL
FINANCIAL CORP.




Consolidated Statements of Financial Condition




	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		December 31,  
		
		


		 
	
	
		
		


		(in thousands)
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
	
	
		
		


		Assets
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Cash and cash equivalents
		
		


		 
		
		


		$
		
		


		253,529
		
		


		 
		
		


		$
		
		


		161,820
		
		


		 
	
	
		
		


		Restricted cash
		
		


		 
		
		


		 
		
		


		6,868
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Cash segregated for regulatory purposes
		
		


		 
		
		


		 
		
		


		6,023
		
		


		 
		
		


		 
		
		


		19
		
		


		 
	
	
		
		


		Receivables:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Brokerage clients, net  
		
		


		 
		
		


		 
		
		


		477,514
		
		


		 
		
		


		 
		
		


		383,222
		
		


		 
	
	
		
		


		Brokers, dealers, and clearing organizations
		
		


		 
		
		


		 
		
		


		247,707
		
		


		 
		
		


		 
		
		


		309,609
		
		


		 
	
	
		
		


		Securities purchased under agreements to resell
		
		


		 
		
		


		 
		
		


		123,617
		
		


		 
		
		


		 
		
		


		124,854
		
		


		 
	
	
		
		


		Trading securities owned, at fair value (includes securities pledged of
		$272,172 and $287,683, respectively)
		
		


		 
		
		


		 
		
		


		444,170
		
		


		 
		
		


		 
		
		


		454,891
		
		


		 
	
	
		
		


		Available-for-sale securities, at fair value
		
		


		 
		
		


		 
		
		


		1,012,714
		
		


		 
		
		


		 
		
		


		578,488
		
		


		 
	
	
		
		


		Held-to-maturity securities, at amortized cost
		
		


		 
		
		


		 
		
		


		52,640
		
		


		 
		
		


		 
		
		


		7,574
		
		


		 
	
	
		
		


		Loans held for sale
		
		


		 
		
		


		 
		
		


		86,344
		
		


		 
		
		


		 
		
		


		91,117
		
		


		 
	
	
		
		


		Bank loans, net
		
		


		 
		
		


		 
		
		


		389,742
		
		


		 
		
		


		 
		
		


		335,157
		
		


		 
	
	
		
		


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


		 
		
		


		 
		
		


		1,577
		
		


		 
		
		


		 
		
		


		3,143
		
		


		 
	
	
		
		


		Investments
		
		


		 
		
		


		 
		
		


		178,936
		
		


		 
		
		


		 
		
		


		109,403
		
		


		 
	
	
		
		


		Fixed assets, net  
		
		


		 
		
		


		 
		
		
71,498
		
		


		 
		
		


		 
		
		


		62,115
		
		


		 
	
	
		
		


		Goodwill
		
		


		 
		
		


		 
		
		


		301,919
		
		


		 
		
		


		 
		
		


		166,725
		
		


		 
	
	
		
		


		Intangible assets, net
		
		


		 
		
		


		 
		
		


		34,595
		
		


		 
		
		


		 
		
		


		24,648
		
		


		 
	
	
		
		


		Loans and advances to financial advisors and other employees, net
		
		


		 
		
		


		 
		
		


		181,357
		
		


		 
		
		


		 
		
		


		185,123
		
		


		 
	
	
		
		


		Deferred tax assets, net
		
		


		 
		
		


		 
		
		


		197,139
		
		


		 
		
		


		 
		
		


		53,462
		
		


		 
	
	
		
		


		Other assets
		
		


		 
		
		


		 
		
		


		145,226
		
		


		 
		
		


		 
		
		


		115,986
		
		


		 
	
	
		
		


		Total Assets
		
		


		 
		
		


		$ 
		
		


		4,213,115
		
		


		 
		
		


		$
		
		


		3,167,356
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	





See
accompanying Notes to Consolidated Financial Statements.



80








 

STIFEL
FINANCIAL CORP.




Consolidated Statements of Financial Condition (continued) 




	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		December 31,
		
		


		 
	
	
		
		


		(in thousands, except share and per share amounts)
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
	
	
		
		


		Liabilities and Shareholders' Equity
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Short-term borrowings from banks
		
		


		 
		
		


		$
		
		


		109,600
		
		


		 
		
		


		$
		
		


		90,800
		
		


		 
	
	
		
		


		Payables:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Customers
		
		


		 
		
		


		 
		
		


		212,642
		
		


		 
		
		


		 
		
		


		214,883
		
		


		 
	
	
		
		


		Brokers, dealers, and clearing organizations
		
		


		 
		
		


		 
		
		


		114,869
		
		


		 
		
		


		 
		
		


		90,460
		
		


		 
	
	
		
		


		Drafts
		
		


		 
		
		


		 
		
		


		73,248
		
		


		 
		
		


		 
		
		


		66,964
		
		


		 
	
	
		
		


		Securities sold under agreements to repurchase
		
		


		 
		
		


		 
		
		


		109,595
		
		


		 
		
		


		 
		
		


		122,533
		
		


		 
	
	
		
		


		Bank deposits
		
		


		 
		
		


		 
		
		


		1,623,568
		
		


		 
		
		


		 
		
		


		1,047,211
		
		


		 
	
	
		
		


		Federal Home Loan Bank advances
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		2,000
		
		


		 
	
	
		
		


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


		 
		
		


		 
		
		


		200,140
		
		


		 
		
		


		 
		
		


		277,370
		
		


		 
	
	
		
		


		Accrued compensation
		
		


		 
		
		


		 
		
		


		234,512
		
		


		 
		
		


		 
		
		


		166,346
		
		


		 
	
	
		
		


		Accounts payable and accrued expenses
		
		


		 
		
		


		 
		
		


		170,382
		
		


		 
		
		


		 
		
		


		113,364
		
		


		 
	
	
		
		


		Debenture to Stifel Financial Capital Trust II
		
		


		 
		
		


		 
		
		


		35,000
		
		


		 
		
		


		 
		
		


		35,000
		
		


		 
	
	
		
		


		Debenture to Stifel Financial Capital Trust III
		
		


		 
		
		


		 
		
		


		35,000
		
		


		 
		
		


		 
		
		


		35,000
		
		


		 
	
	
		
		


		Debenture to Stifel Financial Capital Trust IV
		
		


		 
		
		


		 
		
		


		12,500
		
		


		 
		
		


		 
		
		


		12,500
		
		


		 
	
	
		
		


		Other
		
		


		 
		
		


		 
		
		


		19,935
		
		


		 
		
		


		 
		
		


		9,398
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		2,950,991
		
		


		 
		
		


		 
		
		


		2,283,829
		
		


		 
	
	
		
		


		Liabilities subordinated to claims of general creditors
		
		


		 
		
		


		 
		
		


		8,241
		
		


		 
		
		


		 
		
		


		10,081
		
		


		 
	
	
		
		


		Shareholders' Equity:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


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


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Exchangeable common stock - $0.15 par value; issued 598,412 and zero
		shares, respectively
		
		


		 
		
		


		 
		
		


		90
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Common stock - $0.15 par value; authorized 97,000,000 shares; issued
		35,214,952 and 30,388,270 shares, respectively
		
		


		 
		
		


		 
		
		


		5,282
		
		


		 
		
		


		 
		
		


		4,558
		
		


		 
	
	
		
		


		Additional paid-in-capital
		
		


		 
		
		


		 
		
		


		1,085,474
		
		


		 
		
		


		 
		
		


		623,943
		
		


		 
	
	
		
		


		Retained earnings
		
		


		 
		
		


		 
		
		


		232,415
		
		


		 
		
		


		 
		
		


		244,615
		
		


		 
	
	
		
		


		Accumulated other comprehensive income
		
		


		 
		
		


		 
		
		


		381
		
		


		 
		
		


		 
		
		


		1,302
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		
1,323,642
		
		


		 
		
		


		 
		
		


		874,418
		
		


		 
	
	
		
		


		Treasury stock, at cost, 1,490,315 and 4,221 shares, respectively
		
		


		 
		
		


		 
		
		


		(69,238
		
		


		)
		
		


		 
		
		


		(242
		
		


		)
	
	
		
		


		Unearned employee stock ownership plan shares, at cost, 81,349 and
		113,885 shares, respectively
		
		


		 
		
		


		 
		
		


		(521
		
		


		)
		
		


		 
		
		


		(730
		
		


		)
	
	
		
		


		 
		
		


		 
		
		


		 
		
		
1,253,883
		
		


		 
		
		


		 
		
		


		873,446
		
		


		 
	
	
		
		


		Total Liabilities and Shareholders' Equity
		
		


		 
		
		


		$
		
		
4,213,115
		
		


		 
		
		


		$
		
		


		3,167,356
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	





See
accompanying Notes to Consolidated Financial Statements.



81








 

STIFEL
FINANCIAL CORP.




Consolidated Statements of Operations




	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Year ended December 31,
		
		


		 
	
	
		
		

		

		(in thousands, except per share amounts)
		
		


		 
		
		


		2010
		
		


		 
		
		


		2009
		
		


		 
		
		


		2008
		
		


		 
	
	
		
		

		

		Revenues:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Principal transactions
		
		


		 
		
		


		$
		
		


		453,533
		
		


		 
		
		


		$ 
		
		


		458,188
		
		


		 
		
		


		$ 
		
		


		293,285
		
		


		 
	
	
		
		


		Commissions
		
		


		 
		
		


		 
		
		


		445,260
		
		


		 
		
		


		 
		
		


		345,520
		
		


		 
		
		


		 
		
		


		341,090
		
		


		 
	
	
		
		


		Investment banking
		
		


		 
		
		


		 
		
		


		218,104
		
		


		 
		
		


		 
		
		


		125,807
		
		


		 
		
		


		 
		
		


		83,710
		
		


		 
	
	
		
		


		Asset management and service fees
		
		


		 
		
		


		 
		
		


		193,159
		
		


		 
		
		


		 
		
		


		117,357
		
		


		 
		
		


		 
		
		


		122,773
		
		


		 
	
	
		
		


		Interest
		
		


		 
		
		


		 
		
		


		65,326
		
		


		 
		
		


		 
		
		


		46,860
		
		


		 
		
		


		 
		
		


		50,148
		
		


		 
	
	
		
		


		Other income/(loss)
		
		


		 
		
		


		 
		
		


		19,855
		
		


		 
		
		


		 
		
		


		9,138
		
		


		 
		
		


		 
		
		


		(2,159
		
		


		)
	
	
		
		


		Total revenues
		
		


		 
		
		


		 
		
		


		1,395,237
		
		


		 
		
		


		 
		
		


		1,102,870
		
		


		 
		
		


		 
		
		


		888,847
		
		


		 
	
	
		
		


		Interest expense
		
		


		 
		
		


		 
		
		


		13,211
		
		


		 
		
		


		 
		
		


		12,234
		
		


		 
		
		


		 
		
		


		18,510
		
		


		 
	
	
		
		


		Net revenues
		
		


		 
		
		


		 
		
		


		1,382,026
		
		


		 
		
		


		 
		
		


		1,090,636
		
		


		 
		
		


		 
		
		


		870,337
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Non-interest expenses:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Compensation and benefits
		
		


		 
		
		


		 
		
		


		1,056,202
		
		


		 
		
		


		 
		
		


		718,115
		
		


		 
		
		


		 
		
		


		582,778
		
		


		 
	
	
		
		


		Occupancy and equipment rental
		
		


		 
		
		


		 
		
		


		115,742
		
		


		 
		
		


		 
		
		


		89,741
		
		


		 
		
		


		 
		
		


		67,984
		
		


		 
	
	
		
		


		Communications and office supplies
		
		


		 
		
		


		 
		
		


		69,929
		
		


		 
		
		


		 
		
		


		54,745
		
		


		 
		
		


		 
		
		


		45,621
		
		


		 
	
	
		
		


		Commissions and floor brokerage
		
		


		 
		
		


		 
		
		


		26,301
		
		


		 
		
		


		 
		
		


		23,416
		
		


		 
		
		


		 
		
		


		13,287
		
		


		 
	
	
		
		


		Other operating expenses
		
		


		 
		
		


		 
		
		


		114,081
		
		


		 
		
		


		 
		
		


		84,205
		
		


		 
		
		


		 
		
		


		68,898
		
		


		 
	
	
		
		


		Total non-interest expenses
		
		


		 
		
		


		 
		
		


		1,382,255
		
		


		 
		
		


		 
		
		


		970,222
		
		


		 
		
		


		 
		
		


		778,568
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Income/(loss) before income tax expense
		
		


		 
		
		


		 
		
		


		(229
		
		


		) 
		
		


		 
		
		


		120,414
		
		


		 
		
		


		 
		
		


		91,769
		
		


		 
	
	
		
		


		Provision for income taxes/(benefit)
		
		


		 
		
		


		 
		
		


		(2,136
		
		


		) 
		
		


		 
		
		


		44,616
		
		


		 
		
		


		 
		
		


		36,267
		
		


		 
	
	
		
		

		

		Net income
		
		


		 
		
		


		$
		
		


		1,907
		
		


		 
		
		


		$
		
		


		75,798
		
		


		 
		
		


		$
		
		


		55,502
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Earnings per common share:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Basic
		
		


		 
		
		


		$
		
		


		0.06
		
		


		 
		
		


		$
		
		


		2.68
		
		


		 
		
		


		$
		
		


		2.31
		
		


		 
	
	
		
		


		Diluted
		
		


		 
		
		


		$
		
		


		0.05
		
		


		 
		
		


		$
		
		


		2.35
		
		


		 
		
		


		$
		
		


		1.98
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		Weighted average number of common shares outstanding:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Basic
		
		


		 
		
		


		 
		
		


		32,482
		
		


		 
		
		


		 
		
		


		28,297
		
		


		 
		
		


		 
		
		


		24,069
		
		


		 
	
	
		
		


		Diluted
		
		


		 
		
		


		 
		
		


		38,448
		
		


		 
		
		


		 
		
		


		32,294
		
		


		 
		
		


		 
		
		


		28,073
		
		


		 
	
	
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	





See
accompanying Notes to Consolidated Financial Statements.



82










 





STIFEL
FINANCIAL CORP.




Consolidated Statements of Changes in Shareholders' Equity 




	
		
		

		

		 
		
		


		 
		
		


		Common Stock
		
		


		 
		
		


		Additional Paid-In  
		
		


		 
		
		


		Retained
		
		


		 
		
		


		Accumulated Other Comprehensive
		
		


		 
		
		


		Treasury Stock, at
		
		


		 
		
		


		Unearned Employee Stock Ownership  
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Shares
		
		


		 
		
		


		Amount
		
		


		 
		
		


		Capital
		
		


		 
		
		


		Earnings
		
		


		 
		
		


		Income
		
		


		 
		
		


		cost
		
		


		 
		
		


		Plan
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		

		

		Balance at December 31, 2007
		
		


		 
		
		


		23,320
		
		


		 
		
		


		 
		
		


		3,498
		
		


		 
		
		


		 
		
		


		298,092
		
		


		 
		
		


		 
		
		


		125,303
		
		


		 
		
		


		 
		
		


		(660
		
		


		)
		
		


		 
		
		


		(450
		
		


		)
		
		


		 
		
		


		(1,146
		
		


		)
		
		


		 
		
		


		424,637
		
		


		 
	
	
		
		


		Comprehensive income:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Net income
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		55,502
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		55,502
		
		


		 
	
	
		
		


		Net unrealized loss on securities, net of tax
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(6,634
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(6,634
		
		


		)
	
	
		
		


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


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		999
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		999
		
		


		 
	
	
		
		


		Total

		comprehensive income
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		49,867
		
		


		 
	
	
		
		


		Purchase of treasury stock
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(12,141
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(12,141
		
		


		)
	
	
		
		


		Employee stock ownership plan purchases
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,004
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		208
		
		


		 
		
		


		 
		
		


		1,212
		
		


		 
	
	
		
		


		Issuance of stock for employee benefit plans
		
		


		 
		
		


		811
		
		


		 
		
		


		 
		
		


		122
		
		


		 
		
		


		 
		
		


		(21,480
		
		


		)
		
		


		 
		
		


		(9,951
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		9,874
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(21,435
		
		


		)
	
	
		
		


		Stock option exercises
		
		


		 
		
		


		243
		
		


		 
		
		


		 
		
		


		37
		
		


		 
		
		


		 
		
		


		1,062
		
		


		 
		
		


		 
		
		


		(1,861
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		2,657
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,895
		
		


		 
	
	
		
		


		Warrant exercises
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(4
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		4
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Unit amortization
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		52,593
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		52,593
		
		


		 
	
	
		
		


		Excess tax benefit from stock-based compensation
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		14,840
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		14,840
		
		


		 
	
	
		
		


		Ryan Beck contingent earn-out
		
		


		 
		
		


		289
		
		


		 
		
		


		 
		
		


		43
		
		


		 
		
		


		 
		
		


		11,277
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		56
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		11,376
		
		


		 
	
	
		
		


		Issuance of stock - public offering
		
		


		 
		
		


		1,495
		
		


		 
		
		


		 
		
		


		224
		
		


		 
		
		


		 
		
		


		64,145
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		64,369
		
		


		 
	
	
		
		


		Extinguishment of Stifel Financial Capital Trust IV
		
		


		 
		
		


		142
		
		


		 
		
		


		 
		
		


		21
		
		


		 
		
		


		 
		
		


		5,951
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		5,972
		
		


		 
	
	
		
		

		

		Balance at December 31, 2008
		
		


		 
		
		


		26,300
		
		


		 
		
		


		$
		
		


		3,945
		
		


		 
		
		


		$
		
		


		427,480
		
		


		 
		
		


		$
		
		


		168,993
		
		


		 
		
		


		$
		
		


		(6,295
		
		


		)
		
		


		$
		
		


		-
		
		


		 
		
		


		$
		
		


		(938
		
		


		)
		
		


		$
		
		


		593,185
		
		


		 
	
	
		
		


		Comprehensive income:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Net income
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		75,798
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		75,798
		
		


		 
	
	
		
		


		Unrealized gain on securities, net of tax
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		7,517
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		7,517
		
		


		 
	
	
		
		


		Unrealized loss on cash flow hedging activities, net of tax
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		80
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		80
		
		


		 
	
	
		
		


		Total comprehensive income
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		83,395
		
		


		 
	
	
		
		


		Purchase of treasury stock
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		572
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(572
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
	
	
		
		


		Employee stock ownership plan purchases
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,347
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		208
		
		


		 
		
		


		 
		
		


		1,555
		
		


		 
	
	
		
		


		Issuance of stock for employee benefit plans
		
		


		 
		
		


		738
		
		


		 
		
		


		 
		
		


		110
		
		


		 
		
		


		 
		
		


		(7,607
		
		


		)
		
		


		 
		
		


		(72
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		102
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(7,467
		
		


		)
	
	
		
		


		Stock option exercises
		
		


		 
		
		


		354
		
		


		 
		
		


		 
		
		


		53
		
		


		 
		
		


		 
		
		


		986
		
		


		 
		
		


		 
		
		


		(104
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		228
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,163
		
		


		 
	
	
		
		


		Unit amortization
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		42,502
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		42,502
		
		


		 
	
	
		
		


		Excess tax benefit from stock-based compensation
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		13,337
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		13,337
		
		


		 
	
	
		
		


		Ryan Beck contingent earn-out
		
		


		 
		
		


		271
		
		


		 
		
		


		 
		
		


		41
		
		


		 
		
		


		 
		
		


		9,260
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		9,301
		
		


		 
	
	
		
		


		Issuance of stock - at the market offering
		
		


		 
		
		


		1,000
		
		


		 
		
		


		 
		
		


		150
		
		


		 
		
		


		 
		
		


		44,544
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		44,694
		
		


		 
	
	
		
		


		Issuance of stock - public offering
		
		


		 
		
		


		1,725
		
		


		 
		
		


		 
		
		


		259
		
		


		 
		
		


		 
		
		


		91,511
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		91,770
		
		


		 
	
	
		
		


		Warrant exercises
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		11
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		11
		
		


		 
	
	
		
		

		

		Balance at December 31, 2009
		
		


		 
		
		


		30,388
		
		


		 
		
		


		$
		
		


		4,558
		
		


		 
		
		


		$
		
		


		623,943
		
		


		 
		
		


		$
		
		


		244,615
		
		


		 
		
		


		$
		
		


		1,302
		
		


		 
		
		


		$
		
		


		(242
		
		


		)
		
		


		$
		
		


		(730
		
		


		)
		
		


		$
		
		


		873,446
		
		


		 
	





See
accompanying Notes to Consolidated Financial Statements.



83










STIFEL
FINANCIAL CORP.




Consolidated Statements of Changes in Shareholders' Equity (continued)




	
		
		

		

		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Common Stock
		
		


		 
		
		


		Additional Paid-In  
		
		


		 
		
		


		Retained
		
		


		 
		
		


		Accumulated Other Comprehensive
		
		


		 
		
		


		Treasury Stock, at
		
		


		 
		
		


		Unearned Employee Stock Ownership  
		
		


		 
		
		


		 
		
		


		 
	
	
		
		

		

		 
		
		


		 
		
		


		Shares
		
		


		 
		
		


		Amount
		
		


		 
		
		


		Capital
		
		


		 
		
		


		Earnings
		
		


		 
		
		


		Income
		
		


		 
		
		


		cost
		
		


		 
		
		


		Plan
		
		


		 
		
		


		Total
		
		


		 
	
	
		
		

		

		Balance at December 31, 2009
		
		


		 
		
		


		30,388
		
		


		 
		
		


		$
		
		


		4,558
		
		


		 
		
		


		$
		
		


		623,943
		
		


		 
		
		


		$
		
		


		244,615
		
		


		 
		
		


		$
		
		


		1,302
		
		


		 
		
		


		$
		
		


		(242
		
		


		)
		
		


		$
		
		


		(730
		
		


		)
		
		


		$
		
		


		873,446
		
		


		 
	
	
		
		


		Comprehensive income:
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
		
		


		 
	
	
		
		


		Net income
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,907
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,907
		
		


		 
	
	
		
		


		Unrealized gain on securities, net of tax
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		3,132
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		3,132
		
		


		 
	
	
		
		


		Unrealized loss on cash flow hedging activities, net of tax
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(5,793
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(5,793
		
		


		)
	
	
		
		


		Foreign currency translation adjustment, net of tax
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,740
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,740
		
		


		 
	
	
		
		


		Total comprehensive income
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		986
		
		


		 
	
	
		
		


		Purchase of treasury stock
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(91,769
		
		


		)
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		(91,769
		
		


		)
	
	
		
		


		Employee stock ownership plan purchases
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		1,446
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		-
		
		


		 
		
		


		 
		
		


		209