Stifel Financial Corp. (NYSE: SF) today announced unaudited record quarterly net income of $22.1 million, or $0.67 per diluted share, on record net revenues of $289.7 million for its third quarter ended September 30, 2009, compared to $12.8 million, or $0.46 per diluted share, on net revenues of $218.9 million reported for the same period last year.

Net income for the nine months ended September 30, 2009 was $51.1 million, or $1.62 per diluted share, on record net revenues of $771.2 million, compared with $39.4 million, or $1.44 per diluted share, on net revenues of $639.4 million, in the prior year period. The three and nine month periods ended September 30, 2008, include acquisition-related charges, primarily compensation, of $3.9 million, or $0.14 per diluted share, and $11.9 million, or $0.44 per diluted share, respectively. Our current year third quarter and year-to-date effective tax rates were reduced due to the recognition of a tax benefit related to an investment and jobs creation tax credit.

At September 30, 2009, our stockholders’ equity was $833.6 million, resulting in book value per share of $27.63. During the nine months ended September 30, 2009, we completed two public offerings of our $0.15 par value common stock totaling 2,725,000 shares for total net proceeds of $135.6 million.

Chairman’s Comments

Chairman and Chief Executive Officer Ronald J. Kruszewski commented, “We are pleased with our quarterly results. Our company is on pace for its 14th consecutive year of record net revenues and, despite significant investment in our platform and capabilities, is also on track to post record net income for the year. Our quarterly results were positively impacted by a $0.10 earnings per share tax benefit, which was offset by approximately $0.07 earnings per share in transitional expenses, including $1.9 million in duplicate rent for our New York offices and $2.5 million in conversion expenses related to our UBS transaction. During the quarter, we raised approximately $92 million in equity capital to support our plans to become the premier middle-market investment bank and brokerage firm.”

Review of Business Highlights

Third Quarter Highlights

For the three months ended September 30, 2009, we posted record net revenues of $289.7 million, a 32% increase over the third quarter of 2008 and an 11% increase over the second quarter of 2009. Our revenue growth was primarily derived from increased principal transactions and investment banking offset by a decline in asset management fees. Net income of $22.1 million, or $0.67 per diluted share, increased 73% over the third quarter of 2008 and increased 40% over the second quarter of 2009.

Revenues

• Principal transactions revenue of $123.3 million increased 81% over the third quarter of 2008 and increased 13% from the second quarter of 2009. Principal transactions increased in the Global Wealth Management (“GWM”) and Capital Markets (“CM”) segments, primarily in over-the-counter equity, corporate, government and municipal debt and mortgage-backed bonds.
• Commission revenue of $90.9 million increased 3% from the third quarter of 2008 and increased 2% from the second quarter of 2009.
• Investment banking revenue increased 39% from the third quarter of 2008 to $35.1 million and increased 42% from the second quarter of 2009. Capital raising revenues increased $11.3 million to $22.4 million as compared to the third quarter of 2008 and increased 57% from the second quarter of 2009. Strategic advisory fees decreased 9% to $12.7 million as compared to the third quarter of 2008 and increased 22% from the second quarter of 2009.
• Asset management and service fees revenue decreased 16% to $25.5 million from the third quarter of 2008 primarily as a result of a 10% decrease in the value of assets in fee based client accounts, and increased 4% from the second quarter of 2009, primarily as a result of a 23% increase in the value of assets in fee based client accounts.

Non-interest expenses

• Compensation and benefits expense increased 29% to $193.1 million from the third quarter of 2008 and increased 10% from the second quarter of 2009, primarily due to increased production and headcount associated with the expansion of our GWM and CM segments. For the three months ended September 30, 2009, compensation and benefits expense includes $14.8 million, or 5% of net revenues, of transition pay, which primarily consist of upfront notes, signing bonuses and retention awards in connection with our continuing expansion efforts, compared to $9.7 million, or 4% of net revenues, for the comparable period in 2008 and $13.9 million, or 5% of net revenues, for the second quarter of 2009.
• Non-compensation operating expenses increased 38% to $65.7 million from the third quarter of 2008, and increased 10% from the second quarter of 2009 primarily due to the aforementioned expansion of our GWM and CM segments.

Provision for income taxes

• Provision for income taxes was $8.7 million, representing an effective tax rate of 28%, compared to $8.3 million for the comparable period in 2008, representing an effective tax rate of 39%. Our current year third quarter effective tax rate was reduced due to the recognition of a tax benefit of $3.4 million related to an investment and jobs creation tax credit.

YTD Highlights

For the nine months ended September 30, 2009, we posted record net revenues of $771.2 million, a 21% increase over the comparable period in 2008. Our revenue growth was primarily derived from increased principal transactions and investment banking offset by a decline in commissions and asset management fees. Net income increased 30% to $51.1 million, or $1.62 per diluted share.

Revenues

• Principal transactions revenue for the nine months ended September 30, 2009 increased 70% to $341.8 million from the comparable period in 2009. Principal transactions increased in the GWM and CM segments, primarily in over-the-counter equity, corporate, government and municipal debt and mortgage-backed bonds.
• Commission revenue of $246.2 million for the nine months ended September 30, 2009 decreased 4% from the comparable period in 2008.
• Investment banking revenue for the nine months ended September 30, 2009 increased 11% to $75.3 million from the comparable period in 2008. For the nine months ended September 30, 2009, capital raising revenues increased 17% to $42.1 million while strategic advisory fees increased 4% to $33.2 million as compared to the prior year.
• Asset management and service fees revenue for the nine months ended September 30, 2009 decreased 17% to $75.0 million from the comparable period in 2008, primarily as a result of a 10% decrease in the value of assets in fee based client accounts.
• Customer margin interest revenue for the nine months ended September 30, 2009 decreased $8.6 million or 49% from the comparable period in 2008, primarily as a result of a decrease in the margin receivables due to market volatility.

Non-interest expenses

• For the nine months ended September 30, 2009, compensation and benefits expense increased 17% to $516.9 million from the comparable period in 2008, primarily due to increased production and headcount associated with the expansion of our GWM and CM segments in the first nine months of 2009. For the nine months ended September 30, 2009, compensation and benefits expense includes $40.9 million, or 5% of net revenues, of transition pay compared to $25.5 million, or 4% of net revenues, for the comparable period in 2008.
• Non-compensation operating expenses for the nine months ended September 30, 2009 increased 32% to $175.2 million from the comparable period in 2008, primarily due to the aforementioned expansion of our GWM and CM segments during the first nine months of 2009.

Provision for income taxes

• Provision for income taxes was $28.0 million, representing an effective tax rate of 35%, compared to $25.7 million for the comparable period in 2008, representing an effective tax rate of 39%. The reduction of our year-to-date effective tax rate is attributable to the previously mentioned tax benefit recognized in the third quarter of 2009.

Business Segment Results

Global Wealth Management Segment

The UBS branch acquisition and related customer account conversion to our platform has enabled us to leverage our customers’ assets, which allows us the ability to provide a full array of financial products to both our Private Client Group and Stifel Bank customers. As a result, we have changed how we manage these reporting units and consequently they will be combined to form the Global Wealth Management segment effective September 30, 2009.

Third Quarter Highlights

• Net revenues of $157.1 million, a 34% increase over the third quarter of 2008 and a 16% increase from the second quarter of 2009. Our Global Wealth Management segment consists of the Private Client Group (“PCG”) and Stifel Bank & Trust (“Stifel Bank”) reporting units. PCG had net revenues of $152.2 million, a 34% increase over the third quarter of 2008 and a 16% increase from the second quarter of 2009. Stifel Bank had net revenues of $4.9 million, a 55% increase over the third quarter of 2008 and a 19% increase from the second quarter of 2009.
• Commission revenue increased 27% over the third quarter of 2008 and increased 21% from the second quarter of 2009.
• Principal transactions revenue increased 86% over the third quarter of 2008 and increased 9% from the second quarter of 2009.
• Investment banking revenues, which represents sales commissions on investment banking underwritings, increased 26% from the third quarter of 2008 and increased 50% from the second quarter of 2009.
• Asset management and service fees revenue decreased 16% from the third quarter of 2008 and increased 4% from the second quarter of 2009.
• For the three months ended September 30, 2009, compensation and benefits expense was 62% of net revenues compared to 61% for the comparable period in 2008 and 62% for the second quarter of 2009.
• Operating contribution of $27.5 million, a 17% increase from the third quarter of 2008 and a 24% increase from the second quarter of 2009.
• Stifel Bank’s investment portfolio increased 358% over the third quarter of 2008 and increased 126% from the second quarter of 2009, primarily due to purchases of agency mortgage-backed securities.
• Stifel Bank’s retained loan portfolio increased 66% over the third quarter of 2008 and increased 86% from the second quarter of 2009, driven by the addition of Reg U loans acquired in the UBS transaction.
• Bank deposits increased 235% over the third quarter of 2008 and increased 86% from the second quarter of 2009.

YTD Highlights

• Net revenues of $406.6 million for the nine months ended September 30, 2009, a 14% increase over the comparable period in 2008. PCG and Stifel Bank had net revenues of $393.9 million and $12.7 million for the nine months ended September 30, 2009, a 13% and 50% increase, respectively, over the comparable period in 2008.
• Commission revenue and principal transactions revenue for the nine months ended September 30, 2009 increased 8% and 55%, respectively, over the comparable period in 2008.
• Investment banking revenue, which represents sales commissions on investment banking underwritings, decreased 33% from the comparable period in 2008.
• Asset management and service fees revenue decreased 17% from the comparable period in 2008.
• For the nine months ended September 30, 2009, compensation and benefits expense was 62% of net revenues compared to 61% for the comparable period in 2008.
• Operating contribution of $67.1 million for the nine months ended September 30, 2009, a 16% decrease from the comparable period in 2008.
• We completed the integration of Butler Wick PCG offices we acquired on December 31, 2008.
• We completed three waves of the UBS acquisition during the third quarter. The final wave closed on October 16, 2009.
• We added 83 PCG offices and 583 Financial Advisors, including 40 offices and 245 Financial Advisors from UBS and 17 offices and 67 Financial Advisors from Butler Wick, in the first nine months as part of our ongoing footprint expansion efforts.

Capital Markets Segment

Third Quarter Highlights

• Net revenues of $130.2 million, a 28% increase over the third quarter of 2008 and a 4% increase from the second quarter of 2009. Our Capital Markets segment consists of our Equity Capital Markets (“ECM”) and Fixed Income Capital Markets (“FICM”) reporting units.
• Institutional brokerage revenues were $97.9 million, a 24% increase over the third quarter of 2008 and a 3% decrease from the second quarter of 2009. ECM institutional brokerage revenues were $39.7 million, an 11% decrease over the third quarter of 2008 and a 4% increase from the second quarter of 2009. FICM institutional brokerage revenues were $58.2 million, a 71% increase over the third quarter of 2008 and an 8% decrease from the second quarter 2009.
• Investment banking revenues were $30.8 million, a 41% increase over the third quarter of 2008 and a 41% increase over the second quarter of 2009. ECM investment banking revenues were $24.6 million, a 35% increase over the third quarter of 2008 and a 41% increase over the second quarter of 2009. FICM investment banking revenues were $6.2 million, a 76% increase over the third quarter of 2008 and a 42% increase over the second quarter of 2009.
  • Capital raising revenues were $18.1 million, a 134% increase over the third quarter of 2008 and a 59% increase over the second quarter of 2009. ECM capital raising revenues were $13.2 million, a 144% increase over the third quarter of 2008 and a 75% increase over the second quarter of 2009. FICM capital raising revenues were $4.9 million, a 110% increase over the third quarter of 2008 and a 27% increase over the second quarter of 2009.
  • Advisory fees were $12.7 million, a 10% decrease from the third quarter of 2008 and a 22% increase over the second quarter of 2009. ECM advisory fees were $11.4 million, an 11% decrease from the third quarter of 2008 and a 15% increase over the second quarter of 2009. FICM advisory fees were $1.3 million, an 11% increase over the third quarter of 2008 and a 142% increase over the second quarter of 2009.
• For the three months ended September 30, 2009, compensation and benefits expense was 60% of net revenues compared to 61% for the third quarter of 2008 and 59% for the second quarter of 2009.
• Operating contribution of $33.4 million, a 41% increase over the third quarter of 2008 and a 5% increase from the second quarter of 2009.
• Net margins were 26% compared to 23% for the third quarter of 2008 and 25% in the second quarter 2009.

YTD Highlights

• Net revenues of $360.8 million for the nine months ended September 30, 2009, a 30% increase over the comparable period in 2008.
• Institutional brokerage revenues were $289.3 million, a 31% increase over the comparable period in 2008. ECM and FICM institutional brokerage revenues were $114.6 million and $174.7 million, a 1% decrease and 66% increase, respectively, over the comparable period in 2008.
• Investment banking revenues were $66.1 million, a 22% increase over the comparable period in 2008. ECM and FICM investment banking revenues were $52.1 million and $14.0 million, a 17% and 42% increase, respectively, over the comparable period in 2008.
  • Capital raising revenues were $32.9 million, a 48% increase over the comparable period in 2008. ECM and FICM capital raising revenues were $21.4 million and $11.5 million, a 28% and 107% increase, respectively, over the comparable period in 2008.
  • Advisory fees were $33.2 million, a 4% increase over the comparable period in 2008. ECM and FICM advisory fees were $30.7 million and $2.5 million, an 11% increase and a 42% decrease, respectively, over the comparable period in 2008.
• For the nine months ended September 30, 2009, compensation and benefits expense was 59% of net revenues compared to 62% for the comparable period in 2008.
• Net margins for the nine months ended September 30, 2009 were 25% compared to 22% for the comparable period in 2008.
• We added 63 revenue producers in the first nine months of 2009.

Statement of Financial Condition Highlights (Unaudited)

Total assets increased 42% to $2.9 billion at September 30, 2009 from $2.0 billion at September 30, 2008. The increase is primarily attributable to increased receivables, trading inventory, financial instruments, loans and advances to financial advisors and the recognition of goodwill associated with our acquisition of UBS, which is based on preliminary estimates and is subject to change upon the final valuation. Our broker-dealer subsidiary’s gross assets and liabilities, including trading inventory, stock loan/borrow, receivables and payables from/to brokers, dealers and clearing organizations and clients, fluctuate with our business levels and overall market conditions. The increase in assets is primarily attributable to the growth of our company, both organically and through the acquisition of UBS. Total stockholders’ equity increased $268.2 million, or 47%, to $833.6 million at September 30, 2009, principally due to proceeds from our two equity offerings, net income, and amortization of stock-based awards.

At September 30, 2009, we reported total securities owned and investments at fair value of $990.2 million, which included securities categorized as level III of $73.3 million. Our level III assets include $55.8 million of auction rate securities, of which the auctions have failed.

Conference Call Information

Stifel Financial Corp. will hold a conference call Monday, November 9, 2009, at 4:45 p.m. Eastern. This call will be Web cast and slides can be accessed on the Investor Relations portion of the Stifel Financial Corp. website at www.stifel.com, as well as on all sites within Thomson/CCBN's Investor Distribution Network. Questions may be posed to management by participants on the call, and in response, the company may disclose additional material information. To participate in the question and answer portion on the call, please dial 888-676-3684 and request the Stifel Financial Corp. earnings call. The subjects to be covered may also contain forward-looking information.

Company Information

Stifel Financial Corp. operates 297 offices in 41 states and the District of Columbia through its principal subsidiary, Stifel Nicolaus and Company, Inc., and 3 European offices through Stifel Nicolaus Limited. Stifel Nicolaus provides securities brokerage, investment banking, trading, investment advisory, commercial and retail banking and related financial services to individual investors, professional money managers, businesses, and municipalities. Stifel Bank & Trust offers a full range of consumer and commercial lending solutions. To learn more about Stifel, please visit our company's web site at www.stifel.com.

Forward-Looking Statements

This press release contains certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this press release not dealing with historical results are forward-looking and are based on various assumptions. The forward-looking statements in this press release are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among other things, the following possibilities: the ability to successfully integrate the acquired companies or the branch offices and financial advisors as part of the our transaction with UBS; a material adverse change in the financial condition; the risk of borrower, depositor and other customer attrition; a change in general business and economic conditions; changes in the interest rate environment, deposit flows, loan demand, real estate values, and competition; changes in accounting principles, policies or guidelines; changes in legislation and regulation; other economic, competitive, governmental, regulatory, geopolitical, and technological factors affecting the companies’ operations, pricing, and services; and other risk factors referred to from time to time in filings made by Stifel with the Securities and Exchange Commission. Forward-looking statements speak only as to the date they are made. Stifel does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Stifel disclaims any intent or obligation to update these forward-looking statements.