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(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

For the transition period from to

Commission file number 1-9305

__________________________________________________________________

(Former name, former address, and former fiscal year, if changed since last report)

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 x No ¨

Indicate by check mark whether the Registrant is an accelerated filer as defined in Exchange Act Rule 12b-2. Yes x No ¨

Shares of common stock, par value $0.15, outstanding at November 1, 2004: 9,848,140.

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Stifel Financial Corp.
Form 10-Q Index
September 30, 2004

Page 2

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

STIFEL FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except par values and share amounts)

Page 3

STIFEL FINANCIAL CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)

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 nine months ended September 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. For further informa tion, 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 periods' 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):

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1. In 2004, the Company amended its Employee Stock Purchase Plan ("ESPP") and under the provisions of FASB Statement No. 123, the amended plan is considered non-compensatory. In 2003, the ESPP was considered compensatory and a pro-forma expense of $118 and $354 for the three- and nine-months ended, respectively, were included above.
2. All shares and earnings per share amounts reflect the four-for-three stock split distributed in September 2004. (See Note D)

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.

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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.

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 September 30, 2004, SN & Co. had net capital of $86,022,428, which was 34.55% of its aggregate debit items, and $81,043,001 in excess of the minimum required net capital.

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.

On August 23, 2004, Stifel Financial Corp. announced a four-for-three stock split. The additional shares were distributed on September 15, 2004, to shareholders on record as of September 1, 2004. Each shareholder received one additional share for every three shares owned. Cash was distributed in lieu of fractional shares. The number of shares outstanding and amounts per share in the condensed consolidated statements of operations and the notes to condensed consolidated financial statements have been restated to give retroactive effect to the stock split.

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NOTE E - SEGMENT REPORTING

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.

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:

Page 9

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 nine months ended September 30, are as follows:

The effective tax rates for the three-months and nine-months ended September 30, 2004 were 39.5%, and 35.7% respectively, compared with 40.2% for both the three-months and nine-months ended September 30, 2003. 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 nine-month period ending September 30, 2004 was 39.7%.

******

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 statements, 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.

Investor confidence in the equity markets continue to be constrained by continued threats of terrorism abroad, increased oil prices, the war in Iraq, inflation, the uncertainty leading up to the presidential election, and rising interest rates. Since June 30, 2004 the Federal Reserve Board increased the federal funds rate 75 basis points to 1.75%.

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 September 30, 2004, these indices were down 3.4%, 2.3%, and 7.4% respectively over their June 30, 2004 close, but were up 8.7%, 11.9% and 6.2%, respectively over their September 30, 2003 close. Given the existence of these uncertainties in the current economic environment, the results for the first nine months of 2004 are not necessarily indicative of the full year results.

Page 11

Results of Operations

	September-04			September-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 105,795	58.0%	14%	$ 93,162	60.1%
Investment banking	41,879	22.9%	21%	34,753	22.4%
Asset management and service fees	26,587	14.6%	31%	20,299	13.1%
Interest	9,621	5.3%	4%	9,239	6.0%
Other	1,941	1.0%	41%	1,373	0.9%
Total Revenues	185,823	101.8%	17%	158,826	102.5%
Less: Interest expense	3,267	1.8%	-17%	3,916	2.5%
Net Revenues	182,556	100.0%	18%	154,910	100.0%
Non-interest expenses:
Employee compensation and benefits	119,238	65.3%	14%	104,269	67.3%
Occupancy and equipment rental	15,292	8.4%	7%	14,289	9.2%
Communications and office supplies	7,633	4.2%	-5%	8,015	5.2%
Commissions and floor brokerage	2,692	1.5%	14%	2,370	1.5%
Other operating expenses	12,542	6.8%	4%	12,005	7.8%
Total Non-interest expenses	157,397	86.2%	12%	140,948	91.0%
Income before income taxes	25,159	13.8%	80%	13,962	9.0%
Provision for Income Taxes	8,993	4.9%	60%	5,618	3.6%
Net Income	$ 16,166	8.9%	94%	$ 8,344	5.4%

The Company recorded net income of $16.2 million, or $1.32 per diluted share on net revenues of $182.6 million for the nine months ended September 30, 2004 compared to net income of $8.3 million, or $0.77 per diluted share, on net revenues of $154.9 million for the same period one year earlier. Net income for the nine-month period ended September 30, 2004 included a $1.0 million tax benefit, or $0.08 per diluted share, resulting from the settlement in the first quarter of a state tax matter covering a number of years. The prior year nine month results include a reversal of a $1.2 million charge, net of tax, or approximately $0.11 per diluted share, resulting from the favorable settlement of an arbitration award. All prior year share and earnings per share amounts have been retroactively restated to reflect the four-for-three stock split distributed in September 2004.

The Company's results for the first nine months of 2004 as compared to the same period in 2003 were attributed to the strong equity markets, principally in the first quarter of 2004, for both the Private Client Group and Equity Capital Markets segments as evidenced by a 14% increase in revenues from commissions and principal transactions which increased to $105.8 million. As stated previously, the Dow Jones Industrial Average, the Standard & Poor's 500 Index and the NASDAQ composite were up 8.7%, 11.9% and 6.2%, respectively, over their September 30, 2003 close.

Investment banking revenues increased 21% to $41.9 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 31% to $26.6 million primarily as a result of increased managed account fees and increased fees for account handling and processing.

Page 12

Other revenues increased generally due to gains on sale of investments of $501,000.

Total non-interest expenses increased 12% to $157.4 million for the first nine months of 2004 principally from an increase in variable compensation and benefits as expected. The prior year other operating expenses include the reversal of a $2.0 million charge from the favorable settlement of an arbitration award previously discussed. Excluding the prior year reversal, other operating expenses declined $1.5 million primarily as a result of decreased legal, litigation settlements, and provision for doubtful collection for terminated investment executives. Income before income taxes increased by a greater percentage than net revenues, demonstrating the leverage in production within the Company.

The effective tax rates for the three-months and nine-months ended September 30, 2004 were 39.5%, and 35.7% respectively, compared with 40.2% for both the three-months and nine-months ended September 30, 2003. 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 nine-month period ending September 30, 2004 was 39.7%.

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 nine month discussion and the statements contained in that discussion also apply for the three month discussion.

	September-04			September-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 32,584	58.5%	-5%	$ 34,427	57.5%
Investment banking	11,547	20.7%	-25%	15,402	25.7%
Asset management and service fees	8,899	16.0%	21%	7,329	12.2%
Interest	3,537	6.4%	16%	3,050	5.1%
Other	251	0.4%	-74%	976	1.6%
Total Revenues	56,818	102.0%	-7%	61,184	102.1%
Less: Interest expense	1,123	2.0%	-11%	1,259	2.1%
Net Revenues	55,695	100.0%	-7%	59,925	100.0%
Non-interest expenses:
Employee compensation and benefits	35,873	64.4%	-9%	39,355	65.7%
Occupancy and equipment rental	5,089	9.1%	8%	4,724	7.9%
Communications and office supplies	2,718	4.9%	4%	2,607	4.4%
Commissions and floor brokerage	970	1.7%	14%	852	1.4%
Other operating expenses	4,008	7.3%	5%	3,818	6.3%
Total Non-interest expenses	48,658	87.4%	-5%	51,356	85.7%
Income before income taxes	7,037	12.6%	-18%	8,569	14.3%
Provision for Income Taxes	2,780	5.0%	-19%	3,445	5.7%
Net Income	$ 4,257	7.6%	-17%	$ 5,124	8.6%

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For the third quarter of 2004, the Company recorded net income of $4.3 million, or $0.35 per diluted share on net revenues of $55.7 million compared to net income of $5.1 million, or $0.46 per diluted share, on net revenues of $59.9 million for the comparable quarter of 2003. The prior year third quarter results include a reversal of a $1.2 million charge, net of tax, or approximately $0.11 per diluted share, resulting from the favorable settlement of an arbitration award.

Commissions and principal transactions decreased 5% to $32.6 million as investor confidence in the equity markets weakened in the third quarter. Despite the increase in the September 30, 2004 close of key market indicators over their respective September 30, 2003 close, the 2003 third quarter commissions and principal transactions reflected enthusiasm for equity based products as investors surged back into the markets beginning in the second quarter of 2003.

Investment banking revenues decreased 25% to $11.6 million, resulting principally from a decrease in the number of lead or co-managed equity, debt, closed end fund and trust preferred offerings also reflective of the market decline.

Interest revenues increased principally as a result of increased rates charged on customer borrowings. Interest expense declined resulting from increased utilization of stock lending to finance customer borrowings, which bear a lower interest rate than bank loans.

Other revenues decreased 74 % to $251,000 principally as a result of losses on investments.

Non-interest expenses decreased 5% to $48.7 million principally from decreased variable employee compensation and benefits as production and profitability decreased. As a result of the 7% decrease in net revenues and a 5% decrease in non-interest expenses, income before income taxes decreased 18% to $7.0 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.

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

	September-04			September-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commission and principal transactions	$ 97,505	69.9%	16%	$ 84,318	71.5%
Investment banking	10,307	7.4%	14%	9,010	7.6%
Asset management and service fees	26,574	19.1%	32%	20,189	17.1%
Interest	7,489	5.4%	2%	7,373	6.3%
Other	266	0.1%	n/a	-	0.0%
Total Revenues	142,141	101.9%	18%	120,890	102.5%
Less: Interest expense	2,651	1.9%	-9%	2,903	2.5%
Net Revenues	139,490	100.0%	18%	117,987	100.0%
Non-interest expenses:
Employee compensation and benefits	80,759	57.9%	16%	69,772	59.1%
Occupancy and equipment rental	8,582	6.2%	6%	8,130	6.9%
Communications and office supplies	4,244	3.0%	-12%	4,836	4.1%
Commissions and floor brokerage	1,961	1.4%	22%	1,614	1.4%
Other operating expenses	8,215	5.9%	-3%	8,504	7.2%
Total Non-interest expenses	103,761	74.4%	12%	92,856	78.7%
Income before income taxes	35,729	25.6%	42%	25,131	21.3%

The Private Client Group net revenues increased 18% to $139.5 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 - Nine 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 increased principally as a result of increased rates charged on customer borrowings. Interest expense declined 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 $6.1 million and $4.8 million from the nine months ended September 30, 2004 and 2003, respectively, compensation, as a percentage of net revenues was 53.5% and 54.2% respectively.

Communication and office supplies decreased 12% principally as a result of improved vendor pricing for network and frame relay services.

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Other operating expenses declined as a result of a decrease in the provision for doubtful collection for terminated investment executives. The 2003 other operating expenses include the $2.0 million reversal of an arbitration settlement discussed previously.

As a result of the 18% increase in net revenues and the leverage in increased production, income before income taxes for the Private Client Group increased 42% to $35.7 million.

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

	September-04			September-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 29,764	69.6%	-6%	$ 31,740	72.8%
Investment banking	2,384	5.6%	-21%	3,021	6.9%
Asset management and service fees	8,896	20.8%	22%	7,314	16.8%
Interest	2,671	6.3%	13%	2,372	5.4%
Other	39	0.1%	n/a	-	0.0%
Total Revenues	43,754	102.4%	-2%	44,447	101.9%
Less: Interest expense	1,039	2.4%	25%	830	1.9%
Net Revenues	42,715	100.0%	-2%	43,617	100.0%
Non-interest expenses:
Employee compensation and benefits	24,399	57.1%	-4%	25,277	58.0%
Occupancy and equipment rental	2,856	6.7%	4%	2,743	6.3%
Communications and office supplies	1,497	3.5%	-7%	1,609	3.7%
Commissions and floor brokerage	615	1.4%	8%	570	1.3%
Other operating expenses	2,964	7.0%	147%	1,201	2.7%
Total Non-interest expenses	32,331	75.7%	3%	31,400	72.0%
Income before income taxes	10,384	24.3%	-15%	12,217	28.0%

The Private Client Group net revenues for the third quarter 2004 decreased 2.1% to $42.7 million, from the third quarter of 2003.

Commissions and principal transactions decreased as investor confidence in the market conditions for equity-based products cooled in the third quarter.

Investment banking revenues declined as a result of a decrease in the number of lead or co-managed transactions (see Results of Operations for Equity Capital Markets - Three Months).

Non-interest expenses increased 3% to $32.3 million principally resulting from an increase in other operating expenses which increased due to the prior year third quarter reversal of a $2.0 million charge for the favorable settlement of an arbitration award previously discussed, offset by a decrease in employee compensation and benefits which declined due to decreased 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 $1.9 million for both the three months ended September 30, 2004 and 2003, employee compensation and benefits, as a percentage of net revenues was 52.6% and 53.5%, respectively.

As a result of a 2% decrease in net revenues and a 3% increase in non-interest expenses, income before income taxes decreased 15%.

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Results of Operations for Equity Capital Markets - Nine Months

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

	September-04			September-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 6,951	24.4%	20%	$ 5,811	23.1%
Investment banking	21,101	74.0%	13%	18,790	74.6%
Other	604	2.2%	-24%	790	3.1%
Total Revenues	28,656	100.6%	13%	25,391	100.8%
Less: Interest expense	159	0.6%	-24%	209	0.8%
Net Revenues	28,497	100.0%	13%	25,182	100.0%
Non-interest expenses:
Employee compensation and benefits	16,442	57.7%	4%	15,768	62.6%
Occupancy and equipment rental	902	3.2%	-2%	919	3.7%
Communications and office supplies	1,402	4.9%	-2%	1,432	5.7%
Commissions and floor brokerage	632	2.2%	-7%	677	2.7%
Other operating expenses	477	1.7%	291%	122	0.4%
Total Non-interest expenses	19,855	69.7%	5%	18,918	75.1%
Income before income taxes	8,642	30.3%	38%	6,264	24.9%

Net revenues increased 13% principally due to increased underwriting activity resulting from an increase in lead and co-managed offerings due to improved equity markets. During the first nine months of 2004, the Equity Capital Markets group led or co-managed 60 equity, debt, closed end funds or trust preferred offerings compared to 51 such offerings in the same period in 2003.

Other non-interest operating expenses increased 5% primarily as a result of the increase in employee compensation and benefits, principally variable compensation, which increased in conjunction with increased production. Employee compensation and benefits as a percentage of net revenues decreased to 58% as a result of increased productivity.

Other operating expenses increased due to an increase in travel and entertainment by syndicate and corporate finance personnel. All other expense categories remained relatively unchanged. As a result income before income taxes increased 38% to $8.6 million.

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Results of Operations for Equity Capital Markets - Three Months

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

	September-04			September-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 2,119	25.1%	16%	$ 1,834	14.8%
Investment banking	6,245	74.0%	-39%	10,242	82.9%
Other	136	1.6%	-59%	332	2.7%
Total Revenues	8,500	100.7%	-32%	12,408	100.4%
Less: Interest expense	56	0.7%	12%	50	0.4%
Net Revenues	8,444	100.0%	-32%	12,358	100.0%
Non-interest expenses:
Employee compensation and benefits	5,119	60.6%	-28%	7,061	57.1%
Occupancy and equipment rental	292	3.5%	-9%	320	2.6%
Communications and office supplies	448	5.3%	-1%	451	3.6%
Commissions and floor brokerage	325	3.8%	32%	247	2.1%
Other operating expenses	127	1.5%	N/a	- -	0.0%
Total Non-interest expenses	6,311	74.7%	-22%	8,079	65.4%
Income before income taxes	2,133	25.3%	-50%	4,279	34.6%

Net revenues decreased 32% principally due to a decrease in the number of lead or co-managed equity, debt, closed end funds or trust preferred offerings. For the third quarter the Equity Capital Markets group lead or co-managed 19 equity, debt, closed end funds or trust preferred offerings compared to 25 such offerings in the 2003 third quarter. Employee compensation and benefits, principally variable compensation, decreased 28%, as a result of decreased production. Employee compensation and benefits as a percentage of net revenue increased to 60.6% due to decreased production. Other non-compensation expenses remained relatively unchanged. As a result, income before income taxes decreased 50% to $2.1 million.

Page 18

Results of Operations for Fixed Income Capital Markets - Nine Months

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

	September-04			September-03
(In thousands)	$ Amount	% of Net Revenues	% Incr. / (Decr.)	$ Amount	% of Net Revenues
Revenues:
Commissions and principal transactions	$ 4,931	42.1%	-7%	$ 5,313	52.6%
Investment banking	6,820	58.3%	42%	4,793	47.5%
Interest	587	5.0%	-11%	658	6.5%
Other	24	0.2%	14%	21	0.2%
Total Revenues	12,362	105.6%	15%	10,785	106.8%
Less: Interest expense	655	5.6%	-5%	687	6.8%
Net Revenues	11,707	100.0%	16%	10,098	100.0%
Non-interest expenses:
Employee compensation and benefits	8,433	72.0%	12%	7,519	74.5%
Occupancy and equipment rental	549	4.7%	8%	508	5.0%
Communications and office supplies	654	5.6%	-13%	752	7.5%
Commissions and floor brokerage	100	0.9%	26%	80	0.8%
Other operating expenses	461	3.9%	26%	367	3.6%
Total Non-interest expenses	10,197	87.1%	11%	9,226	91.4%
Income before income taxes	1,510	12.9%	73%	872	8.6%