STIFEL FINANCIAL CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The condensed consolidated financial statements include the accounts of Stifel Financial Corp. and its subsidiaries (collectively referred to as the "Company"). The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further information, refer to the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003.

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management considers its significant estimates, which are most susceptible to change, to be the fair value of investments, the accrual for litigation, the reserve for uncollectibility of broker notes, and interim incentive compensation accruals. Actual results could differ from those estimates.

Where appropriate, prior period's financial information has been reclassified to conform to the current period presentation.

The Company has no components of other comprehensive income; therefore comprehensive income equals net income.

The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans. As a result, no stock-based employee compensation cost is reflected in net income, as all options grants under these plans had an exercise price equal to the market value of the underlying common stock on the date of grant. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under the Fixed Stock Option and the Employee Stock Purchase Plans consistent with the method of Financial Accounting Standards Board ("FASB") Statement No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share amounts):

Page 6

In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46"), an interpretation of Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 was immediately effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 were to originally be applied as of July 1, 2003. However, the FASB subsequently issued numerous FASB Staff Positions attempting to clarify and improve the application of FIN 46, one of which deferred the effective date of FIN 46 to the fourth quarter of 2003. In December 2003, the FASB issued FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities ("FIN 46R"), which clarifies the definition of a variable interest, exempts entities that are businesses from its scope, and partially delays the effective date of FIN 46 for certain entities. The delay notwithstanding, public companies were required to apply either FIN 46 or FIN 46R to special purpose entities ("SPEs"), as defined, no later than the first reporting period ending after December 15, 2003 (December 31, 2003 for the Company). FIN 46R also was required to be applied to all variable interest entities that are not SPEs no later than the end of the first reporting period ending after March 15, 2004.

The Company's wholly owned subsidiary, Stifel Financial Capital Trust I (the "Trust"), is considered an SPE. As of December 31, 2003, the Company elected to apply the provisions of FIN 46R to the Trust. The adoption resulted in the deconsolidation of the Trust and the retroactive reclassification of the obligation from the preferred trust offering from the caption "Guaranteed preferred beneficial interest in subordinated debt securities" to "Debenture to Stifel Financial Capital Trust I" in the consolidated statements of financial condition. Other than the retroactive reclassification, the adoption of FIN 46R, as it relates to the Trust, did not have an impact on the Company's consolidated statements of operations, stockholders' equity, or cash flows. At March 31, 2004, the Company adopted FIN 46R for its remaining variable interest entities that are not SPEs. This adoption did not have an impact on the Company's consolidated interim financial statements.

Page 7

NOTE B - NET CAPITAL REQUIREMENT

The Company's principal subsidiary, Stifel, Nicolaus & Company, Incorporated ("SN & Co."), is subject to the Uniform Net Capital Rule 15c3-1 under the Securities Exchange Act of 1934, as amended (the "Rule"), which requires the maintenance of minimum net capital, as defined. SN & Co. has elected to use the alternative method permitted by the Rule which requires maintenance of minimum net capital equal to the greater of $250,000 or 2 percent of aggregate debit items arising from customer transactions, as defined. The Rule also provides that equity capital may not be withdrawn and cash dividends may not be paid if resulting net capital would be less than 5 percent of aggregate debit items.

At June 30, 2004, SN & Co. had minimum required net capital of $5,043,096. The Company's net capital was well in excess of minimum required net capital.

On June 30, 2004, the Company increased it borrowings from banks by $35.0 million to finance underwriting transactions on July 1, 2004. All transactions were settled on July 1, 2004 and the short-term borrowings were repaid.

The Company is a defendant in several lawsuits and arbitrations which arose from its business activities. Some of these lawsuits and arbitrations claim substantial amounts including punitive damage claims. Although the ultimate outcome of these actions cannot be ascertained at this time and the results of legal proceedings cannot be predicted with certainty, management, based on its understanding of the facts, its consultation with outside counsel and after consideration of amounts provided for in the accompanying financial statements with respect to these matters, does not believe the ultimate resolution of these matters will have a material adverse effect on the Company's consolidated financial condition and results of operations. It is reasonably possible that certain of these lawsuits and arbitrations could be resolved in the next year, and management does not believe such resolutions will result in losses materially in excess of the amounts previously provided.

The Company's reportable segments include Private Client Group, Equity Capital Markets, Fixed Income Capital Markets and Other. Prior periods' financial information has been reclassified to conform with the current period presentation. The Private Client Group segment includes branch offices and independent contractor offices of the Company's broker-dealer subsidiaries located throughout the U.S., primarily in the Midwest. These branches provide securities brokerage services, including the sale of equities, mutual funds, fixed income products, and insurance, to their private clients. The Equity Capital Markets segment includes corporate finance management and participation in underwritings (exclusive of sales credits, which are included in the Private Client Group segment), mergers and acquisitions, institutional sales, trading, research, and market making. Fixed Income Capital Markets segment includes public finance, institutional sales, and competitive underwriting and trading. The " Other" segment includes clearing revenue, interest income from stock borrowing activities, unallocated interest expense, interest income and gains and losses from investments held, 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.

Page 8

Intersegment net revenues and charges are eliminated between segments. The Company evaluates the performance of its segments and allocates resources to them based on various factors, including prospects for growth, return on investment, and return on revenues. The Company has not disclosed asset information by segment, as the information is not produced internally on a regular basis.

Information concerning operations in these segments of business is as follows:

Basic EPS is calculated by dividing net income by the weighted-average number of common shares outstanding. Diluted EPS is similar to basic EPS but adjusts for the effect of potential common shares.

The components of the basic and diluted EPS calculations for the three and six months ended June 30, are as follows:

Page 9

The effective tax rates for the three-months and six-months ended June 30, 2004 were 39.5%, and 34.3% respectively, compared with 40.4% and 40.3% for the three-months and six-months ended June 30, 2003, respectively. The change is due to a $1.0 million tax benefit recorded in the 2004 first quarter resulting from the settlement of a state tax matter covering a number of years. Excluding the $1.0 million tax benefit, the Company's effective tax rate for the six-month period ending June 30, 2004 was 39.8%.

******

Page 10

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of federal securities laws. Words such as "anticipates," "estimates," "believes," "expects" and similar expressions or words are intended to identify forward-looking statements made on behalf of the Company. Actual results are subject to risks and uncertainties, including both those specific to the Company and those specific to the industry, which could cause results to differ materially from those contemplated. The risks and uncertainties include, but are not limited to, general economic conditions, actions of competitors, regulatory actions, changes in legislation and technology changes and other risks and uncertainties set forth in reports and other documents filed with the Securities and Exchange Commission from time to time. Undue reliance should not be placed on the forward-looking sta tements, which speak only as of the date of this Quarterly Report. The Company does not undertake any obligation to publicly update any forward-looking statements.

For a description of critical accounting policies and estimates, including those that involve varying degrees of judgment, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. In addition, see Note A of Notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 for a more comprehensive listing of significant accounting policies.

In addition to those estimates referred to above, the Company's employee compensation and benefit expense for interim periods is impacted by estimates and assumptions. A substantial portion of the Company's employee compensation and benefits expense represents discretionary bonuses, generally determined and paid at year-end. The Company estimates the interim periods discretionary bonus expense based upon individual departmental profitability and total Company pre-tax profits and accrues accordingly.

Despite strong corporate earnings and improved economic conditions, investors' confidence and enthusiasm in the equity markets cooled in the quarter ended June 30, 2004. Uncertainty generated by continued threats of terrorism abroad, increased oil prices, the war in Iraq, inflation, rising interest rates, and the upcoming presidential election, quelled the investor appetite for equity products.

The key indicators of the market's performance, the Dow Jones Industrial Average, the Standard & Poor's 500 Index, and the NASDAQ composite were indicative of the market's susceptibility to volatility and uncertainty. At June 30, 2004, these indices were up 0.8%, 1.3%, and 2.7% respectively over their March 31, 2004 close, but were up 16%, 17% and 26%, respectively over their June 30, 2003 close. Given the existence of these uncertainties in the current economic environment, the results for the first six months of 2004 are not necessarily indicative of the full year results.

Page 11

Results of Operations

	June-04			June-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 72,820	57.4%	24%	$ 58,686	61.8%
Investment banking	30,332	23.9%	57%	19,351	20.4%
Asset management and service fees	17,688	13.9%	36%	12,970	13.7%
Interest	6,084	4.8%	-2%	6,189	6.5%
Other	2,081	1.7%	367%	446	0.4%
Total Revenues	129,005	101.7%	32%	97,642	102.8%
Less: Interest expense	2,144	1.7%	-19%	2,657	2.8%
Net Revenues	126,861	100.0%	34%	94,985	100.0%
Non-interest expenses:
Employee compensation and benefits	83,365	65.7%	28%	64,914	68.3%
Occupancy and equipment rental	10,203	8.0%	7%	9,565	10.1%
Communications and office supplies	4,915	3.9%	-9%	5,408	5.7%
Commissions and floor brokerage	1,722	1.4%	13%	1,518	1.6%
Other operating expenses	8,534	6.7%	4%	8,187	8.6%
Total Non-interest expenses	108,739	85.7%	21%	89,592	94.3%
Income before income taxes	18,122	14.3%	236%	5,393	5.7%
Provision for Income Taxes	6,213	4.9%	186%	2,173	2.3%
Net Income	$ 11,909	9.4%	270%	$ 3,220	3.4%

The Company recorded record net income of $11.9 million, or $1.30 per diluted share on net revenues of $126.9 million for the six months ended June 30, 2004 compared to net income of $3.2 million, or $0.40 per diluted share, on net revenues of $95.0 million for the same period one year earlier. Net income for the six-month period ended June 30, 2004 included a $1.0 million tax benefit, or $0.11 per diluted share, resulting from the settlement in the first quarter of a state tax matter covering a number of years.

The Company's results for the first six months of 2004 as compared to the same period in 2003 were attributed to the strong equity markets for both the Private Client Group and Equity Capital Markets segments as evidenced by a 24% increase in revenues from commissions and principal transactions which increased to $72.8 million. As stated previously, the Dow Jones Industrial Average, the Standard & Poor's 500 Index and the NASDAQ composite were up 16%, 17% and 26%, respectively, over their June 30, 2003 close.

Investment banking revenues increased 57% to $30.3 million due principally to an increase in lead and co-managed equity, debt, closed-end funds, and trust preferred offerings.

Asset management and service fees increased 36% to $17.7 million primarily as a result of increased wrap fees and increased fees for account handling and processing.

Other income increased principally as a result of an increase in gains on investments.

Total non-interest expenses increased 21% to $108.7 million principally from an increase in variable employee compensation and benefits as expected. Income before income taxes increased by a greater percentage than net revenues, demonstrating the leverage in production within the Company.

Page 12

,

	June-04			June-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 33,543	56.5%	3%	$ 32,635	62.5%
Investment banking	13,346	22.5%	24%	10,764	20.6%
Asset management and service fees	9,058	15.2%	35%	6,728	12.9%
Interest	3,086	5.2%	2%	3,024	5.8%
Other	1,437	2.4%	264%	395	0.7%
Total Revenues	60,470	101.8%	13%	53,546	102.5%
Less: Interest expense	1,059	1.8%	-18%	1,294	2.5%
Net Revenues	59,411	100.0%	14%	52,252	100.0%
Non-interest expenses:
Employee compensation and benefits	38,241	64.4%	9%	35,225	67.4%
Occupancy and equipment rental	5,230	8.8%	9%	4,798	9.2%
Communications and office supplies	2,368	4.0%	-11%	2,651	5.1%
Commissions and floor brokerage	918	1.5%	11%	829	1.6%
Other operating expenses	4,332	7.3%	-5%	4,561	8.7%
Total Non-interest expenses	51,089	86.0%	6%	48,064	92.0%
Income before income taxes	8,322	14.0%	99%	4,188	8.0%
Provision for Income Taxes	3,287	5.5%	94%	1,690	3.2%
Net Income	$ 5,035	8.5%	102%	$ 2,498	4.8%

Except as noted in the following discussion of variances for the total Company and the ensuing segment results, the underlying reasons for the three month variances to the prior period are substantially the same as the comparative six month discussion and the statements contained in that discussion also apply for the three month discussion.

For the second quarter of 2004, the Company recorded net income of $5.0 million, or $0.54 per diluted share on net revenues of $59.4 million compared to net income of $2.5 million, or $0.31 per diluted share, on net revenues of $52.3 million for the comparable quarter of 2003.

Commissions and principal transactions increased 3% to $33.5 million principally due to improved equity markets albeit subdued from the immediately preceding quarter as investor confidence cooled.

Investment banking revenues increased 24% to $13.3 million, resulting principally from an increase in corporate finance advisory fees and underwriting participation fees and an increase in municipal finance fees and commissions.

Non-interest expenses increased 6% to $51.1 million principally from increased variable employee compensation and benefits as production and profitability increased. As a result of this increase, together with a correspondingly higher percentage increase of 14% in net revenues, income before income taxes increased 99% to $8.3 million.

The Company's reportable segments include the Private Client Group, Equity Capital Markets, Fixed Income Capital Markets, and Other. Prior periods' financial information has been reclassified to conform with the current period presentation. The Private Client Group segment includes branch offices and independent contractor offices of the Company's broker-dealer subsidiaries located throughout the U.S., primarily in the Midwest. These branches provide securities brokerage services, including the sale of equities, mutual funds, fixed income products, and insurance, to their private clients. The Equity Capital Markets segment includes corporate finance management and participation in underwritings (exclusive of sales credits, which are included in the Private Client Group segment), mergers and acquisitions, institutional sales, trading, research, and market-making. The Fixed Income Capital Markets segment includes public finance, institutional sales and c ompetitive underwriting, and trading. The "Other" segment includes clearing revenue, interest income from stock borrowing activities, unallocated interest expense, interest income and gains and losses from investments held, 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.

The Company defines income before income taxes as net revenues (total revenues less interest expense) less non-interest expenses of the segment.

The following table presents consolidated information for the Private Client Group segment for the respective periods indicated.

	June-04			June-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commission and principal transactions	$ 67,742	70.0%	29%	$ 52,578	70.7%
Investment banking	7,923	8.2%	32%	5,989	8.1%
Asset management and service Fees	17,678	18.3%	37%	12,874	17.3%
Interest	4,818	5.0%	-4%	5,000	6.7%
Other	227	0.2%	n/a	-	0.0%
Total Revenues	98,388	101.7%	29%	76,441	102.8%
Less: Interest expense	1,613	1.7%	-22%	2,072	2.8%
Net Revenues	96,775	100.0%	30%	74,369	100.0%
Non-interest expenses:
Employee compensation and benefits	56,360	58.2%	27%	44,495	59.8%
Occupancy and equipment rental	5,725	5.9%	6%	5,387	7.2%
Communications and office supplies	2,747	2.8%	-15%	3,227	4.3%
Commissions and floor brokerage	1,346	1.4%	29%	1,044	1.4%
Other operating expenses	5,252	5.5%	-28%	7,302 ,	9.8%
Total Non-interest expenses	71,430	73.8%	16%	61,455	82.6%
Income before income taxes	25,345	26.2%	96%	12,914	17.4%

Page 14

The Private Client Group net revenues increased 30% to $96.8 million principally due to increased commissions and principal transactions as a result of improved market conditions for equity based products. In addition, commissions from investment banking increased due to the increased number of lead or co-managed transactions (see "Results of Operation for Equity Capital Markets - Six Months).

Asset management and service fees increased principally due to increased wrap fees, which are billed based upon the value of assets maintained in customer accounts. Assets under management increased due to improved market conditions in conjunction with an increase in the number of managed accounts.

Interest revenues declined as a result of decreased borrowings by customers along with decreased rates charged on those borrowings. Interest expense declined at a greater rate resulting from increased utilization of stock lending to finance customer borrowings, which bear a lower interest rate than bank loans.

Non-interest expenses, principally variable employee compensation and benefits increased in conjunction with increased revenue production. Employee compensation and benefits includes transition pay, principally upfront notes and accelerated payouts in connection with the Company's expansion efforts. Excluding transition pay of $4.2 million and $3.9 million from the six months ended June 30, 2004 and 2003, respectively, compensation, as a percentage of net revenues was 53.5% and 54.6% respectively.

As a result of the 30% increase in net revenues and the leverage in increased production, income before income taxes for the Private Client Group increased 96% to $25.3 million.

The following table presents consolidated information for the Private Client Group segment for the respective periods indicated.

	June-04			June-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 31,204	69.9%	5%	$ 29,596	71.7%
Investment banking	2,589	5.8%	-28%	3,573	8.7%
Asset management and service fees	9,053	20.3%	36%	6,655	16.1%
Interest	2,388	5.3%	-2%	2,440	5.9%
Other	188	0.4%	n/a	-	0.0%
Total Revenues	45,422	101.7%	7%	42,264	102.4%
Less: Interest expense	781	1.7%	-22%	997	2.4%
Net Revenues	44,641	100.0%	8%	41,267	100.0%
Non-interest expenses:
Employee compensation and benefits	25,950	58.1%	7%	24,204	58.7%
Occupancy and equipment rental	2,836	6.4%	7%	2,655	6.4%
Communications and office supplies	1,313	2.9%	-21%	1,660	4.0%
Commissions and floor brokerage	789	1.8%	34%	589	1.4%
Other operating expenses	2,589	5.8%	-25%	3,448	8.4%
Total Non-interest expenses	33,477	75.0%	3%	32,556	78.9%
Income before income taxes	11,164	25.0%	28%	8,711	21.1%

Page 15

The Private Client Group net revenues increased 8% to $44.6 million.

Commissions and principal transactions increased as a result of improved market conditions for equity based products.

Investment banking revenues declined as a result of a decrease in the number and commissions paid on underwritings (see Results of Operations for Equity Capital Markets - Three Months).

Non-interest expenses, principally employee compensation and benefits increased in conjunction with increased revenue production. Employee compensation and benefits includes transition pay, principally upfront notes and accelerated payouts in connection with the Company's expansion efforts. Excluding transition pay of $2.1 million and $1.9 million from the three months ended June 30, 2004 and 2003, respectively, compensation, as a percentage of net revenues was 52.7% and 54.1% respectively.

Other operating expenses decreased $859,000 principally resulting from a decrease in settlement payments for litigation and a decrease in the provision for doubtful collection of notes from former employees.

As a result of the 8% increase in net revenues and the leverage in increased production, income before income taxes for the Private Client Group increased 28% to $11.2 million.

The following table presents consolidated information for the Equity Capital Markets segment for the respective periods indicated.

	June-04			June-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 4,832	24.1%	22%	$ 3,977	31.0%
Investment banking	14,847	74.0%	75%	8,504	66.3%
Other	477	2.4%	-1%	501	3.9%
Total Revenues	20,156	100.5%	55%	12,982	101.2%
Less: Interest expense	103	0.5%	-35%	159	1.2%
Net Revenues	20,053	100.0%	56%	12,823	100.0%
Non-interest expenses:
Employee compensation and benefits	11,323	56.5%	30%	8,707	67.9%
Occupancy and equipment rental	610	3.0%	2%	599	4.7%
Communications and office supplies	953	4.8%	-3%	981	7.6%
Commissions and floor brokerage	308	1.5%	-27%	420	3.3%
Other operating expenses	350	1.7%	168%	131	1.0%
Total Non-interest expenses	13,544	67.5%	25%	10,838	84.5%
Income before income taxes	6,509	32.5%	228%	1,985	15.5%

Net revenues increased 56% principally due to increased underwriting activity resulting from an increase in lead and co-managed offerings due to improved equity markets. During the first six months of 2004, the Equity Capital Markets group led or co-managed 40 equity, debt, closed end funds or trust preferred offerings compared to 26 such offerings in the same period in 2003.

Page 16

Employee compensation and benefits, principally variable compensation, increased in conjunction with increased production. Employee compensation and benefits as a percentage of net revenues decreased to 57% as a result of increased productivity.

Other non-interest operating expenses remained relatively unchanged. As a result, income before income taxes increased 228% to $6.5 million.

The following table presents consolidated information for the Equity Capital Markets segment for the respective periods indicated.

	June-04			June-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 2,292	24.9%	18%	$ 1,939	26.9%
Investment banking	6,725	73.1%	32%	5,082	70.5%
Other	239	2.6%	-8%	261	3.6%
Total Revenues	9,256	100.6%	27%	7,282	101.0%
Less: Interest expense	57	0.6%	-22%	72	1.0%
Net Revenues	9,199	100.0%	28%	7,210	100.0%
Non-interest expenses:
Employee compensation and benefits	4,907	53.3%	4%	4,703	65.2%
Occupancy and equipment rental	333	3.6%	4%	320	4.4%
Communications and office supplies	552	6.0%	15%	478	6.6%
Commissions and floor brokerage	86	0.9%	-60%	213	2.9%
Other operating expenses	379	4.2%	184%	133	2.0%
Total Non-interest expenses	6,257	68.0%	7%	5,847	81.1%
Income before income taxes	2,942	32.0%	116%	1,363	18.9%

Net revenues increased 28% principally due to increased financial advisory fees and underwriting participation fees. Underwriting participation fees, which are recorded in the quarter subsequent to the underwriting, increased as a result of the increased number of underwriting transactions in the first quarter of 2004 over the 2003 first quarter. During the 2004 second quarter, the Equity Capital Markets group lead or co-managed 17 equity, debt, closed end funds or trust preferred offerings compared to 19 such offerings in the 2003 second quarter. Employee compensation and benefits, principally variable compensation, increased slightly, but as a percentage of net revenues decreased to 53% as a result of increased underwriting participation fees, which bear no direct compensation expense. Other non-compensation expenses remained relatively unchanged. As a result, income before income taxes increased 116% to $2.9 million.

Page 17

The following table presents consolidated information for the Fixed Income Capital Markets segment for the respective periods indicated.

	June-04			June-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 3,358	41.6%	-12%	$ 3,837	53.9%
Investment banking	4,740	58.6%	44%	3,292	46.2%
Interest	431	5.3%	9%	397	5.6%
Other	15	0.2%	-6%	16	0.2%
Total Revenues	8,544	105.7%	13%	7,542	105.9%
Less: Interest expense	460	5.7%	10%	418	5.9%
Net Revenues	8,084	100.0%	13%	7,124	100.0%
Non-interest expenses:
Employee compensation and benefits	5,915	73.2%	28%	4,634	65.1%
Occupancy and equipment rental	367	4.5%	7%	344	4.8%
Communications and office supplies	419	5.2%	-17%	505	7.1%
Commissions and floor brokerage	70	0.9%	28%	54	0.8%
Other operating expenses	367	4.5%	49%	247	3.4%
Total Non-interest expenses	7,138	88.3%	23%	5,784	81.2%
Income before income taxes	946	11.7%	-29%	1,340	18.8%

Net revenues increased 13% in the first six months of 2004 as compared to the same period in 2003 principally due to an increase of 44% to $4.7 million in investment banking revenues. The number of senior or co-managed offerings increased to 80 in the first six months of 2004 from 63 in the first six months of 2003. Employee compensation and benefits, principally variable compensation, increased 28% over the comparable six month period in 2003, and as a percentage of net revenues increased to 73% from 65% when compared to the same period in 2003, as a result of increased discretionary and productivity related bonuses. Other non-interest expenses remained relatively unchanged. As a result, income before income taxes decreased 29% to $946,000.