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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the fiscal year ended DECEMBER 31, 2002
-----------------

| | Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

For the transition period from to .
-------------- ----------------

Commission file number 1-9305
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STIFEL FINANCIAL CORP.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

DELAWARE 43-1273600
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

501 North Broadway
St. Louis, Missouri 63102-2102
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(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code 314-342-2000
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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 $.15 per share New York Stock Exchange
Chicago Stock Exchange

Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange

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

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 report) and (2) has been subject to
such filing requirements for the past 90 days.
Yes |X| No | |

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K |X|

Aggregate market value of voting stock held by non-affiliates of the
registrant at March 17, 2003, was $74,912,925.

Shares of Common Stock outstanding at March 17, 2003: 7,101,577 shares, par
value $.15 per share.

DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------

Portions of the Company's Proxy Statement filed with the SEC in connection
with the Company's Annual Meeting of Stockholders to be held May 12, 2003,
are incorporated by reference in Part III hereof. Exhibit Index located on
pages 54 and 55.


1 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




PART I

CAUTIONS ABOUT FORWARD-LOOKING INFORMATION

This Form 10-K and the information incorporated by reference in this Form
10-K contain certain forward-looking statements that are based upon our
current expectations and projections about current events. We intend these
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and we are including this statement for purposes of
these safe harbor provisions. You can identify these statements from our use
of the words "may," "will," "should," "could," "would," "plan," "potential,"
"estimate," "project," "believe," "intend," "anticipate," "expect," and
similar expressions. These forward-looking statements include statements
relating to:

o Our goals, intentions, and expectations;

o Our business plans and growth strategies; and

o Estimates of our risks and future costs and benefits.

These forward-looking statements are subject to significant risks,
assumptions, and uncertainties, including, among other things, changes in
general economic and business conditions and the risks and other factors set
forth in this Form 10-K.

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. You should not place undue reliance on any
forward-looking statements, which speak only as of the date they were made.
We will not update these forward-looking statements, even though our
situation may change in the future, unless we are obligated to do so under
federal securities laws. We qualify all of our forward-looking statements by
these cautionary statements.

RISK FACTORS RELATING TO STIFEL FINANCIAL

WE ARE DIRECTLY AFFECTED BY FLUCTUATIONS IN THE TRADING VOLUME AND PRICE
LEVELS OF SECURITIES, NATIONAL AND INTERNATIONAL ECONOMIC AND POLITICAL
CONDITIONS, AND BROAD TRENDS IN BUSINESS AND FINANCE.

As a brokerage and investment banking firm, our business depends heavily on
conditions in the financial markets and on economic conditions generally,
both domestically and abroad. Many factors outside our control may directly
affect the securities business, in many cases in an adverse manner. These
include:

o Economic and political conditions;
o Broad trends in business and finance;
o Legislation and regulation affecting the national and international
business and financial communities;
o Currency values;
o Inflation;
o Market conditions;
o The availability and cost of short-term or long-term funding and capital;
o The credit capacity or perceived credit worthiness of the securities
industry in the market place; and
o The level and volatility of interest rates.

A DOWNTURN IN THE U.S. SECURITIES MARKET COULD ADVERSELY AFFECT OUR BUSINESS
IN MANY WAYS.

Over the past several years, the stock markets in the United States achieved
record or near record levels, generating substantial revenues for firms in
the securities industry. However, this favorable business environment began
to erode in early 2000, as all major stock indices declined and volatility
increased. This volatility decreased transaction volumes industry-wide, and
many brokerage and investment banking firms experienced a significant
slowdown in business in 2002. Continued volatility or instability in the
financial markets could significantly harm our business for many reasons,
including those described on the following page.


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 2




Because a significant portion of our revenue is derived from commissions,
margin interest revenue, principal transactions, and investment banking
fees, a decline in stock prices, trading volumes, or liquidity could
significantly harm our profitability in the following ways:

o The volume of trades we would execute for our clients may decrease;

o Our customer margin balances may decrease;

o The number and size of transactions for which we provide underwriting
and merger and acquisition advisory services may decline;

o The value of the securities we hold in inventory as assets, which we
often purchase in connection with market-making and underwriting
activities, may decline. In particular, a sizable portion of our
inventory is comprised of fixed income securities, which are sensitive
to interest rates. As interest rates rise or fall, there is a
corresponding increase or decrease in the value of our assets;

o The value of the securities we hold as investments acquired directly
through our subsidiaries may decline. In particular, those investments
in venture capital and start-up type companies, which by their nature
are subject to a high degree of volatility, may be susceptible to
significant fluctuations;

o Because our Equity Capital Markets business is significantly
concentrated in the financial services sector, our financial results
may be adversely affected if future legislative, regulatory, or other
developments in the banking industry cause a decline in the number of
public offerings, private placements, and other capital raising
efforts, including the issuance of trust preferred securities, by
financial institutions, or if there is a significant slowdown in
financial institution mergers and acquisition activity; and

o Our financial results may be adversely affected by the fixed
amortization costs incurred by us in connection with the upfront loans
we offer to investment executives.

To the extent our clients, or counterparties in transactions with us, are
more likely to suffer financial setbacks in a volatile stock market
environment, our risk of loss during these periods would increase.

Declines in the market value of securities can result in the failure of
buyers and sellers of securities to fulfill their settlement obligations,
and in the failure of our clients to fulfill their credit obligations.
During market downturns, counterparties to us in securities transactions may
be less likely to complete transactions. Also, we often permit our clients
to purchase securities on margin or, in other words, to borrow a portion of
the purchase price from us and collateralize the loan with a set percentage
of the securities. During steep declines in securities prices, the value of
the collateral securing 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.
In addition, particularly during market downturns, we may face additional
expense defending or pursuing claims or litigation related to counterparty
or client defaults.

WE FACE INTENSE COMPETITION IN OUR INDUSTRY.

Our business will suffer if we do not compete successfully. All aspects of
our business and of the securities industry in general are intensely
competitive. We expect competition to continue and intensify in the future.

Because many of our competitors have greater resources and offer more
services than we do, increased competition could have a material and adverse
effect on our profitability.

We compete directly with national and regional full-service broker-dealers
and investment banking firms and, to a lesser extent, with discount brokers
and dealers, investment advisors, and commercial banks. We also compete
indirectly for investment assets with insurance companies, real estate
firms, hedge funds, and others.

Although we believe we have competitive advantages, such as the
qualifications and experience of our professional staff, our reputation in
the marketplace, and our existing client relationships, a number of our
competitors have significantly greater capital and financial resources than
we do. 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. These and other
competitive pressures may adversely affect our competitive position and, as
a result, our operations and financial condition.

3 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




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. Recently enacted legislative and regulatory initiatives
intended to ease restrictions on the sale of securities and underwriting
activities by commercial banks are already beginning to increase
competition. This increased competition could cause our business to suffer.

The industry of electronic and/or discount brokerage services is also
rapidly developing. 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.

WE ARE SUBJECT TO AN INCREASED RISK OF LEGAL PROCEEDINGS, WHICH MAY RESULT
IN SIGNIFICANT LOSSES TO US THAT WE CANNOT RECOVER. CLAIMANTS IN THESE
PROCEEDINGS MAY BE CUSTOMERS, EMPLOYEES, OR REGULATORY AGENCIES, AMONG
OTHERS, SEEKING DAMAGES FOR MISTAKES, ERRORS, NEGLIGENCE, OR ACTS OF FRAUD
BY OUR EMPLOYEES.

Many aspects of our business subject us to substantial risks of potential
liability to customers and to regulatory enforcement proceedings by state
and federal regulators. Participants in the securities industry face an
increasing amount of litigation and arbitration proceedings. Dissatisfied
clients regularly make claims against securities firms and their brokers
for, among others, negligence, fraud, unauthorized trading, suitability,
churning, failure to supervise, breach of fiduciary duty, employee errors,
intentional misconduct, unauthorized transactions by investment executives
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 we
cannot assure investors that our risk management procedures and controls
will prevent losses from fraudulent activity. In addition, 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 us. We do not carry
insurance that would cover payments regarding these liabilities, with the
exception of fidelity coverage with respect to fraudulent acts of our
employees. In addition, our by-laws provide for the indemnification of our
officers, directors, and employees to the maximum extent permitted under
Delaware law. We have entered into indemnification agreements with our
directors. We are now, and in the future 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.

In addition to the foregoing financial costs and risks associated with
potential liability, the defense of litigation has increased costs
associated with attorneys' fees. The amount of outside attorneys' fees
incurred in connection with the defense of litigation could be substantial
and might materially and adversely affect our results of operations for any
reporting period. 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.

WE DEPEND ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL. OUR BUSINESS
IS A SERVICE BUSINESS THAT DEPENDS HEAVILY ON HIGHLY SKILLED PERSONNEL AND
THE RELATIONSHIPS THEY FORM WITH CLIENTS.

Our business, as a service business, relies heavily upon our highly skilled
and often highly specialized employees, particularly Ronald J. Kruszewski,
our chairman of the board, president, and chief executive officer, and our
other 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.

We generally do not enter into written employment agreements with our
employees, and employees can stop working with us at any time. Investment
executives typically take their clients with them when they leave to work
for a competitor of ours. From time to time, in addition to investment
executives, we have lost equity research, investment banking, public
finance, and institutional sales and trading professionals to our
competitors, and some have taken clients away from us.


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 4




WE CANNOT ASSURE YOU THAT WE WILL SUCCESSFULLY RETAIN OUR KEY PERSONNEL OR
ATTRACT, ASSIMILATE, OR RETAIN OTHER HIGHLY QUALIFIED PERSONNEL IN THE
FUTURE, AND OUR FAILURE TO DO SO COULD MATERIALLY AND ADVERSELY AFFECT OUR
BUSINESS, FINANCIAL CONDITION, AND OPERATING RESULTS.

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 an employee's decision to leave us. As
competition for skilled professionals in the industry increases, we may have
to devote more significant resources to attracting and retaining qualified
personnel.

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.

CONTINUED GROWTH MAY STRAIN OUR RESOURCES.

One of our strategies is to grow through the recruitment of investment
executives and, to a lesser extent, possible future acquisitions. The growth
of our business and expansion of our client base has and will continue to
strain our management and administrative resources. It will also require
increased investment in management personnel and financial, administrative,
and communication systems. Unless offset by a growth of revenues, the costs
associated with these investments will reduce our operating margins. We
cannot assure investors that we will be able to manage or continue to manage
our recent or future growth successfully. The inability to do so could have
a material adverse effect on our business, financial condition, and
operating results.

TERRORIST ATTACKS HAVE CONTRIBUTED TO ECONOMIC INSTABILITY IN THE UNITED
STATES; CONTINUED TERRORIST ATTACKS, WAR, OR OTHER CIVIL DISTURBANCES COULD
LEAD TO FURTHER ECONOMIC INSTABILITY AND ADVERSELY AFFECT INVESTOR
CONFIDENCE.

The market has been beset with volatility and uncertainty in light of the
terrorist attacks of September 11, 2001, escalating tensions in the Middle
East, recessionary economic conditions, the Federal Reserve Board's interest
rate reductions, the war in Afghanistan, and the threat of war with Iraq.
The full impact of these events on the financial markets is not yet known
but could include, among other things, increased volatility in the prices of
securities, including the preferred securities. We are unable to predict
whether the future effects of the ensuing U.S. military and other responsive
actions, and the threat of similar future events or responses to such
events, will result in long-term commercial disruptions or will have a
long-term adverse effect on the financial markets, as well as our business,
results of operations, or financial condition.

WE CONTINUALLY ENCOUNTER TECHNOLOGICAL CHANGE, AND WE MAY HAVE FEWER
RESOURCES THAN MANY OF OUR COMPETITORS TO CONTINUE TO INVEST IN
TECHNOLOGICAL IMPROVEMENTS.

The brokerage and investment banking industry continues to undergo
technological change, with periodic introductions of new technology-driven
products and services. In addition to better serving clients, the effective
use of technology increases efficiency and enables firms to reduce costs.
Our future success will depend, in part, upon 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 implement new
technology-driven products and services or be successful in marketing these
products and services to our clients.

WE RELY UPON THIRD PARTIES TO PROVIDE CRITICAL FUNCTIONS.

Our trade processing software is operated by a third-party vendor under an
agreement whereby they provide us turn-key maintenance and operation of
mainframe computers and servers that operate the software. Likewise, we
contract with another vendor, affiliated with our trade processing software
vendor, to operate our market data servers, which constantly broadcast news,
quotes, analytics, and other important information to the desktop computers
of our investment executives. We contract with other vendors to produce,
batch, and mail our confirmations and customer reports. As our business
grows, we cannot be assured that the technology and services we require from
third parties will be available. A third-party contractor's inability to
meet our needs could cause us to be unable to timely and accurately process
our clients' transactions or maintain complete and accurate records of such
transactions.

5 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




WE DEPEND HEAVILY ON OUR COMMUNICATIONS AND INFORMATION SYSTEMS, WHICH ARE
VULNERABLE TO SYSTEMS FAILURES.

Our business is highly dependent on communications and information systems.
Any failure or interruption of our systems could cause delays in our
securities trading activities, which could significantly harm our operating
results. We cannot assure you that we will not suffer any of these systems
failures or interruptions from power or telecommunication failures, natural
disasters, or that our back-up procedures and capabilities in the event of
any such failure or interruption will be adequate.

LOCALIZED CONDITIONS IN THE MIDWEST REGION OF THE UNITED STATES, OR TO A
LESSER EXTENT THE ROCKY MOUNTAIN REGION, MAY ADVERSELY AFFECT OUR BUSINESS.

Our customers are, and have historically been, concentrated in the Midwest
region of the United States and, to a lesser extent, the Rocky Mountain
region. Our revenue is derived largely from our retail brokerage business in
these regions. Because of this concentration, we are dependent on market
conditions in these regions. A significant downturn in the economy in any of
these regions could materially and adversely affect our underwriting and
brokerage businesses located there.

LACK OF SUFFICIENT LIQUIDITY 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. The principal source of our liquidity is our assets, consisting
mainly of cash or assets readily convertible into cash. These assets are
financed primarily by our equity capital, preferred securities, 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, 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 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.
Stifel Nicolaus generates substantially all of our revenue. We rely
exclusively on financing activities and distributions from our subsidiaries
for funds to pay dividends, implement our business and growth strategies,
and repurchase shares. Net capital rules, restrictions under our long-term
debt, 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 our
specific financial position. We cannot assure investors that our internal
sources of liquidity will prove sufficient, or if they prove insufficient,
that we will be able to successfully obtain outside financing on favorable
terms, or at all.

WE ARE SUBJECT TO INCREASING GOVERNMENTAL AND ORGANIZATIONAL REGULATION.

Our business, and the securities industry generally, is subject to extensive
regulation at both the federal and state levels. In addition,
self-regulatory organizations, such as the New York Stock Exchange, Inc.
("NYSE") and the National Association of Securities Dealers, Inc. ("NASD"),
require compliance with their extensive rules and regulations. Among other
things, these regulatory authorities impose restrictions on sales methods,
trading practices, use and safekeeping of customer funds and securities,
record keeping, and the conduct of principals and employees. The extensive
regulatory framework applicable to broker-dealers, the purpose of which is
to protect investors and the integrity of the securities markets, imposes
significant compliance burdens and attendant costs on us. The regulatory
bodies that administer these rules do not attempt to protect the interests
of our security holders as such, but rather the public and markets
generally. Failure to comply with any of the laws, rules, or regulations of
any independent, state, or federal regulatory authority could result in a
fine, injunction, suspension, or expulsion from the industry, which could
materially and adversely impact us. Furthermore, amendments to existing
state or federal statutes, rules, and regulations or the adoption of new
statutes, rules, and regulations could require us to alter our methods of
operation at costs which could be substantial. In particular, recent
corporate scandals have given rise to the Sarbanes-Oxley Act, which has
far-reaching effects on corporate governance and accountancy. In addition,
the Securities and Exchange Commission ("SEC"), the NYSE, and the NASD has
promulgated new rules for separation of persons or entities providing
securities research and analysis from investment banks. The enactment of
such a proposal would potentially adversely affect the revenues and profits
of investment banks generally, including the Financial Institutions Group of
our Equity Capital Markets business segment. In addition, our ability to
comply with laws, rules, and regulations is highly dependent upon our
ability to maintain a compliance system which is capable of evolving with
increasingly complex and changing requirements. Moreover, one of our
subsidiaries, Century Securities, gives rise to a higher risk of
noncompliance because of the nature of the independent contractor
relationships involved.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 6




WE ARE SUBJECT TO NET CAPITAL REQUIREMENTS; FAILURE TO COMPLY WITH THESE
RULES 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 broker-dealers to maintain a substantial portion of their
assets in cash or highly liquid investments. Failure to maintain the
required net capital may subject a firm to limitation of its activities,
including suspension or revocation of its registration by the SEC and
suspension or expulsion by the NASD, the NYSE, and other regulatory bodies,
and ultimately may require its liquidation. These rules affect both of our
broker-dealer subsidiaries. Failure to comply with the net capital rules
could have material and adverse consequences, such as:

o Limiting our operations that require intensive use of capital, such as
underwriting or trading activities; or

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

In addition, a change in the net capital rules or the imposition of new
rules affecting the scope, coverage, calculation, or amount of net capital
requirements, or a significant operating loss or any large charge against
net capital, could have similar adverse effects.

OUR RISK MANAGEMENT POLICIES AND PROCEDURES MAY LEAVE US EXPOSED TO
UNIDENTIFIED OR UNANTICIPATED RISK.

Although we have developed risk management procedures and policies to
identify, monitor, and manage risks, we cannot assure investors that our
procedures will be fully effective. Our risk management methods may not
effectively predict the risks we will face in the future, which may be
different in nature or magnitude than past experiences. In addition, some of
our risk management methods are based on an evaluation of information
regarding markets, clients, and other matters provided by third parties.
This information may not be accurate, complete, up-to-date, or properly
evaluated, and our risk management procedures may be correspondingly flawed.
Management of operational, legal, and regulatory risk requires, among other
things, policies and procedures to record properly and verify a large number
of transactions and events, and we cannot assure investors that our policies
and procedures will be fully effective.

ITEM 1. BUSINESS

Stifel Financial Corp. ("Financial" or the "Company"), a Delaware
corporation and a holding company for Stifel, Nicolaus & Company,
Incorporated ("Stifel Nicolaus") and other subsidiaries, was organized in
1983. Stifel Nicolaus is the successor to a partnership founded in 1890.
Unless the context requires otherwise, the term "Company" as used herein
means Stifel Financial Corp. and its subsidiaries.

The Company offers securities-related financial services through its wholly
owned operating subsidiaries, Stifel Nicolaus and Century Securities
Associates, Inc. ("CSA"). These subsidiaries provide brokerage, trading,
investment banking, investment advisory, and related financial services
primarily to customers throughout the United States from 112 locations. The
Company's customers include individuals, corporations, municipalities, and
institutions. Although the Company has customers throughout the United
States, its major geographic area of concentration is in the Midwest and, to
a lesser extent, the Rocky Mountain Region.

FINANCIAL INFORMATION

The amounts of each of the principal sources of revenue, net income, and
total assets of the Company for the years ended December 31, 2002, 2001, and
2000 are contained in Item 6. Selected Financial Data, herein. Financial
information for each segment of the Company is contained in Note R of the
Consolidated Financial Statements filed herein.

NARRATIVE DESCRIPTION OF BUSINESS

As of February 28, 2003, the Company employed 1,172 individuals. Of these,
Stifel Nicolaus employed 1,164 of which 442 were employed as private client
and institutional sales people. In addition, 132 investment executives were
affiliated with CSA as independent contractors. Through its broker-dealer
subsidiaries, the Company provides securities services to approximately
163,000 client accounts. No single client accounts for a material percentage
of any segment of the Company's business.

7 STIFEL FINANCIAL CORP. AND SUBSIDIARIES



PRIVATE CLIENT

The Company provides securities transaction and financial planning services
to its private clients through Stifel Nicolaus' branch system and its
independent contractor firm, CSA. Management has made significant
investments in personnel, technology, and market data platforms to grow the
private client segment over the past four years.

STIFEL NICOLAUS PRIVATE CLIENT

Stifel Nicolaus has 81 private client branches located in 14 states,
primarily in the Midwest. Its 419 investment executives provide a broad
range of services and financial products to their clients. While an
increasing number of clients are electing asset-based fee alternatives to
the traditional commission schedule, in most cases Stifel Nicolaus charges
commissions on both stock exchange and over-the-counter transactions, in
accordance with Stifel Nicolaus' commission schedule. In certain cases,
varying discounts from the schedule are granted. In addition, Stifel
Nicolaus distributes taxable and tax-exempt fixed income products to its
private clients, including municipal, corporate, government agency and
mortgage-backed bonds, preferred stock, and unit investment trusts. In
addition, Stifel Nicolaus distributes insurance and annuity products and
investment company shares. Stifel Nicolaus has dealer-sales agreements with
numerous distributors of investment company shares. These agreements
generally provide for dealer discounts ranging up to 5.75% of the purchase
price, depending upon the size of the transaction.

CSA PRIVATE CLIENT

CSA has affiliations with 132 independent contractors in 30 branch offices
and 82 satellite offices in 29 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.

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. The Company makes 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, NYSE margin requirements, and the Company's internal
policies, which usually are more restrictive than Regulation T or NYSE
requirements. In permitting customers to purchase securities on margin, the
Company is subject to the risk of a market decline, which could reduce the
value of its collateral below the amount of the customers' indebtedness.

EQUITY CAPITAL MARKETS

The Equity Capital Markets segment includes corporate finance, research,
syndicate, over-the-counter equity trading, and institutional sales and
trading.

CORPORATE FINANCE

The corporate finance group consists of 23 professionals, located in St.
Louis, Chicago, Denver, and Louisville, and is involved in public and
private equity and preferred underwritings for corporate clients, merger and
acquisition advisory services, fairness opinions, and evaluations. Stifel
Nicolaus focuses on small and mid-cap companies, primarily financial
institutions.

RESEARCH

The research department consists of 26 analysts, located in St. Louis,
Kansas City, Minneapolis, and Denver, who publish research on 212 companies.
Proprietary research reports are provided to private and institutional
clients at no charge and are supplemented by research purchased from outside
vendors.

SYNDICATE

The syndicate department, consisting of four professionals, coordinates the
marketing, distribution, pricing, and stabilization of the Company's lead-
and co-managed underwritings. In addition, the syndicate department
coordinates the firm's syndicate and selling group activities managed by
other investment banking firms.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 8




OVER-THE-COUNTER EQUITY TRADING

The Company trades as principal in the over-the-counter market. The
over-the-counter equity trading group has ten professionals. It acts as both
principal and agent to facilitate the execution of customers' orders. The
Company makes a market in various securities of interest to its customers
through buying, selling, and maintaining an inventory of these securities.
At February 28, 2003, Stifel Nicolaus made a market in 255 equity issues in
the over-the-counter market. The Company does not engage in a significant
amount of trading for its own account.

INSTITUTIONAL SALES AND TRADING

The institutional equity sales and trading group consists of 14
professionals who provide equity products to its institutional accounts in
both the primary and secondary markets. Primary equity issues are generally
underwritten by Stifel Nicolaus' corporate finance group. At February 28,
2003, the institutional equity sales and trading department had 426
institutional accounts.

FIXED INCOME CAPITAL MARKETS

The Fixed Income Capital Markets segment includes public finance,
institutional sales, and competitive underwriting and trading.

PUBLIC FINANCE

Public finance consists of 29 professionals, with offices in St. Louis,
Missouri; Denver, Colorado; Orlando, Florida; Wichita, Kansas; and
Brookfield, Wisconsin. Stifel Nicolaus acts as an underwriter and dealer in
bonds issued by states, cities, and other political subdivisions and may act
as manager or participant in offerings managed by other firms. The majority
of the Company's municipal bond underwritings are originated through these
offices.

INSTITUTIONAL SALES AND TRADING

Institutional sales, consisting of 15 professionals, is comprised of taxable
and tax-exempt sales departments located in St. Louis, Brookfield, and
Denver. Stifel Nicolaus buys both tax-exempt and taxable products, primarily
municipal, corporate, government agency, and mortgage-backed bonds for its
own account, maintains an inventory of these products, and resells from that
inventory to its institutional accounts. The institutional fixed income
sales group maintained relationships with approximately 1,085 accounts at
February 28, 2003.

OTHER SEGMENTS

In addition to its private client segment and capital markets segments,
Stifel Nicolaus clears transactions for two introducing broker-dealers.
Revenues and costs associated with clearing these transactions are also
included in "other segments."

COMPETITION

The Company competes 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, the
Company faces 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. Some
of these firms generally charge lower commission rates to their customers
without offering services such as portfolio valuation, investment
recommendations, and research. Trading on the Internet has increased
significantly.

Management relies on the expertise acquired in its market area over its
112-year history, its personnel, and its equity capital to operate in the
competitive environment.

9 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




REGULATION

The securities industry in the United States is subject to extensive
regulation under federal and state laws. The 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 ("SROs"), principally the NASD, the Municipal Securities
Rulemaking Board, and the national securities exchanges, such as the NYSE.
SROs adopt rules (which are subject to approval by the SEC) which govern the
industry and conduct periodic examinations of member broker-dealers.
Securities firms are also subject to regulation by state securities
commissions in the states in which they are registered.

As a result of federal and state registration and SRO memberships,
broker-dealers are subject to overlapping schemes of regulation which 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 assure
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 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.

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a
comprehensive revision of laws affecting corporate governance, accounting
obligations, and corporate reporting. The Sarbanes-Oxley Act is applicable
to all companies with equity or debt securities registered under the
Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act
establishes: (1) new requirements for audit committees, including
independence, expertise, and responsibilities; (2) additional
responsibilities regarding financial statements for the Chief Executive
Officer and Chief Financial Officer of the reporting company; (3) new
standards for auditors and regulation of audits; (4) increased disclosure
and reporting obligations for the reporting company and its directors and
executive officers; and (5) new and increased civil and criminal penalties
for violations of the securities laws. Many of the provisions became
effective immediately, while other provisions become effective over a period
of 30 to 270 days and are subject to rulemaking by the SEC. Although there
will be modest additional expenses incurred in complying with the provisions
of the Sarbanes-Oxley Act and the resulting regulations, management does not
expect that such compliance will have a material impact on our results of
operations or financial condition.

The research departments of broker-dealer firms are the subject of increased
regulatory scrutiny. In 2002, the SEC, the NYSE, and the NASD adopted
numerous rules affecting research analysts and their interaction with
investment banking departments at member securities firms, as well as other
companies. Also, acting in part pursuant to a mandate contained in the
Sarbanes-Oxley Act, the SEC, the NYSE, and the NASD proposed additional,
heightened restrictions on the interaction between research analysts and
investment banking departments at member securities firms.

The USA Patriot Act of 2001, enacted in response to the terrorist attacks on
September 11, 2001, contains anti-money laundering and financial
transparency laws and mandates the implementation of various new regulations
applicable to broker-dealers and other financial services companies,
including standards for verifying client identification at account opening
and obligations to monitor client transactions and report suspicious
activities. Through these and other provisions, the Act seeks to promote
cooperation among financial institutions, regulators, and law enforcement
entities in identifying parties that may be involved in terrorism or money
laundering. Anti-money laundering laws outside of the U.S. contain some
similar provisions. The increased obligations of financial institutions,
including Stifel, to identify their customers, watch for and report
suspicious transactions, respond to requests for information by regulatory
authorities and law enforcement agencies, and share information with other
financial institutions requires the implementation and maintenance of
internal practices, procedures, and controls which will increase our costs
and may subject us to liability.

As a broker-dealer and member of the NYSE, Stifel Nicolaus is subject to the
Uniform Net Capital Rule (Rule 15c3-1) promulgated by the SEC, which
provides that a broker-dealer doing business with the public shall not
permit its aggregate indebtedness (as defined) to exceed 15 times its net
capital (as defined) or, alternatively, that its net capital shall not be
less than two percent of aggregate debit

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 10




balances (primarily receivables from customers and broker-dealers) computed
in accordance with the SEC's Customer Protection Rule (Rule 15c3-3). 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. 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. Management believes that the
alternative method, which is utilized by most full-service securities firms,
is more directly related to the level of customer business. Therefore,
Stifel Nicolaus computes its net capital under the alternative method.

Under SEC rules, a broker-dealer may be required to reduce its business and
restrict withdrawal of subordinated capital if its net capital is less than
four percent of aggregate debit balances and may be prohibited from
expanding its business and declaring cash dividends if its net capital is
less than five percent of aggregate debit balances. A broker-dealer that
fails to comply with the Uniform Net Capital Rule may be subject to
disciplinary actions by the SEC and self-regulatory agencies, such as the
NYSE, including censures, fines, suspension, or expulsion. In computing net
capital, various adjustments are made to net worth to exclude assets which
are not readily convertible into cash and to state conservatively the other
assets, such as a firm's position in securities. Compliance with the Uniform
Net Capital Rule may limit those operations of a firm such as Stifel
Nicolaus which require the use of its capital for purposes of maintaining
the inventory required for a firm trading in securities, underwriting
securities, and financing customer margin account balances. Stifel Nicolaus
had net capital of approximately $43.6 million at December 31, 2002, which
was approximately 13.4% of aggregate debit balances and approximately $37.1
million in excess of required net capital.

ITEM 2. PROPERTIES

The Company's headquarters, Stifel Nicolaus' headquarters, and operations
and CSA's headquarters are located in 96,000 square feet of leased office
space in St. Louis, Missouri. The Company's Private Client segment maintains
81 leased offices in 14 states, primarily in the Midwest. The Fixed Income
Capital Markets segment resides in seven leased locations. The Equity
Capital Markets segment occupies leased space in five locations. The
Company's management believes that, at the present time, the facilities are
suitable and adequate to meet its needs and that such facilities have
sufficient productive capacity and are appropriately utilized.

The Company also leases communication and other equipment. Aggregate annual
rental expense, for office space and equipment, for the year ended December
31, 2002, was approximately $9.9 million. Further information about the
lease obligations of the Company is provided in Note D of the Notes to
Consolidated Financial Statements filed and made a part hereof.

ITEM 3. LEGAL PROCEEDINGS

See Note I of the Consolidated Financial Statements filed and made a part
hereof.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT

The following information is furnished pursuant to General Instruction G (3)
of Form 10-K with respect to the executive officers of Financial:



POSITIONS OR OFFICES WITH THE
NAME AGE COMPANY AND STIFEL NICOLAUS

Ronald J. Kruszewski 44 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

Scott B. McCuaig 53 Senior Vice President and Director
of the Company and
President, Co-Chief Operating Officer,
and Director of Stifel Nicolaus

11 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




James M. Zemlyak 43 Senior Vice President, Chief Financial Officer,
and Treasurer of the Company and
Senior Vice President, Co-Chief Operating Officer,
Chief Financial Officer, and Director of Stifel Nicolaus

Walter F. Imhoff 71 Senior Vice President of Stifel Nicolaus and
Director of the Company

Thomas A. Prince 53 Senior Vice President and General Counsel of the Company
and General Counsel, Senior Vice President,
and Director of Stifel Nicolaus

George H. Walker III 72 Chairman Emeritus of the Board of Directors
of the Company


Ronald J. Kruszewski has been President and Chief Executive Officer
of the Company and Stifel Nicolaus since September 1997 and Chairman of the
Board of Directors of the 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 of the Company
since September 1997.

Scott B. McCuaig has been Senior Vice President and President of
the Private Client Group of the Company and Stifel Nicolaus and Director of
Stifel Nicolaus since January 1998 and President and Co-Chief Operating
Officer of Stifel Nicolaus since August 2002. Mr. McCuaig has been a
Director of the Company since April 2001. 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 of the Company since April 2001.

James M. Zemlyak joined Stifel Nicolaus in February 1999. Mr.
Zemlyak has been Senior Vice President, Chief Financial Officer, and
Treasurer of the Company and Senior Vice President, Chief Financial Officer,
and a member of the Board of Directors of Stifel Nicolaus since February
1999 and Co-Chief Operating Officer of Stifel Nicolaus since August 2002.
Prior to joining the 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.

Walter F. Imhoff has served as Senior Vice President of Stifel
Nicolaus and a Director of the Company since January 12, 2000. Prior
thereto, Mr. Imhoff served as Chairman, President, and Chief Executive
Officer of Hanifen, Imhoff Inc., a Colorado-based broker-dealer, from 1979
until it was integrated into the Company on January 12, 2000.

Thomas A. Prince joined Stifel Nicolaus in August 1999. He became
Senior Vice President and General Counsel of the Company and General
Counsel, Senior Vice President, and a Director of Stifel Nicolaus in July
2000. Prior thereto, he served as Branch Manager of the Little Rock,
Arkansas Private Client Group office of Stifel Nicolaus. Prior to joining
Stifel Nicolaus, Mr. Prince was a principal in the law firm of Jack, Lyon &
Jones, PA in Little Rock, Arkansas from January 1990 to August 1999.

George H. Walker III joined Stifel Nicolaus in 1976. Mr. Walker
served as Chief Executive Officer of Stifel Nicolaus from December 1978
until October 1992 and served as Chairman of Stifel Nicolaus from July 1982
until April 2001. Mr. Walker served as Chairman of the Board of the Company
from 1981 to 1985 and from 1988 until April 2001, when he became Chairman
Emeritus, and Mr. Walker served as President and Chief Executive Officer of
the Company until October 1992. Mr. Walker is a Director of Western and
Southern Life Insurance Company, Laidlaw Corporation, and Macroeconomic
Advisers, LLC. Mr. Walker is Chairman of the Advisory Board of the School of
Business and Technology, Webster University and is a member of Washington
University's National Council for the Olin School of Business. He is also
Founder and Chairman of the Steering Committee to bring about "Home Rule"
for the City of St. Louis.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 12




PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

A. MARKET INFORMATION

The common stock of Stifel Financial Corp. is traded on the New York Stock
Exchange and Chicago Stock Exchange under the symbol "SF." The high/low
sales prices for Stifel Financial Corp. common stock, as reported on the
NYSE Consolidated Transactions Reporting System, for each full quarterly
period for the calendar years are as follows:



- -------------------------------------------
STOCK PRICE
HIGH - LOW
- -------------------------------------------
YEAR 2002 BY QUARTER

First $13.20 - 10.40
Second 14.65 - 12.45
Third 13.30 - 11.65
Fourth 12.70 - 10.95
- -------------------------------------------


- -------------------------------------------
YEAR 2001 BY QUARTER

First $14.00 - 10.69
Second 14.00 - 11.40
Third 12.65 - 10.00
Fourth 10.95 - 10.05
- -------------------------------------------





B. HOLDERS

The approximate number of stockholders of record on March 17, 2003, was
3,500.

C. DIVIDENDS

Dividends paid were as follows:

RECORD PAYMENT CASH
DATE DATE DIVIDEND
2/15/01 3/1/01 $0.03
5/10/01 5/24/01 $0.03
8/9/01 8/23/01 $0.03
11/8/01 11/22/01 $0.03
2/13/02 2/27/02 $0.03
5/23/02 6/6/02 $0.03

On May 9, 2002, the Company announced the elimination of future dividends on
common stock.

See restrictions related to the payment of dividends in Liquidity and
Capital Resources contained in "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations" and made part hereof.

D. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Information regarding securities authorized for issuance under equity
compensation plans is contained in "Proposal II. Equity Compensation Plan
Information," included in the Registrant's Proxy Statement for the 2003
Annual Meeting of Stockholders, which information is incorporated herein by
reference.
13 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




ITEM 6. SELECTED FINANCIAL DATA


FIVE-YEAR FINANCIAL SUMMARY

- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
(in thousands, except per share amounts) 2002 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------

REVENUES Commissions $ 71,520 $ 73,517 $ 85,109 $ 68,663 $ 56,729
Principal transactions 36,251 31,009 28,046 24,654 26,465
Investment banking 45,918 37,068 21,700 11,507 15,763
Interest 14,544 21,866 35,479 20,525 18,889
Other 25,880 25,530 27,514 25,844 19,442
---------------------------------------------------------------------------------------------------------------
Total revenues 194,113 188,990 197,848 151,193 137,288
Less: Interest expense 6,319 11,722 20,594 10,097 9,798
---------------------------------------------------------------------------------------------------------------
Net revenues 187,794 177,268 177,254 141,096 127,490
- -----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST Employee compensation and benefits 126,726 120,889 117,229 92,819 86,967
EXPENSES Communications and office supplies 10,737 10,799 10,879 8,911 8,389
Occupancy and equipment rental 18,631 17,673 15,120 11,819 9,549
Commissions and floor brokerage 3,373 3,269 3,059 2,838 2,804
Other operating expenses 23,533 21,251 16,278 13,736 11,192
---------------------------------------------------------------------------------------------------------------
Total non-interest expenses 183,000 173,881 162,565 130,123 118,901
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,794 3,387 14,689 10,973 8,589
Provision for income taxes 2,014 1,377 5,486 3,808 3,344
---------------------------------------------------------------------------------------------------------------
Net income $ 2,780 $ 2,010 $ 9,203 $ 7,165 $ 5,245
===============================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA Basic earnings $ .40 $ .28 $ 1.31 $ 1.08 $ .77
Diluted earnings $ .34 $ .25 $ 1.20 $ 1.03 $ .73
Cash dividends $ .06 $ .12 $ .12 $ .12 $ .12
- -----------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF Total assets $422,976 $440,559 $458,312 $453,110 $335,005
FINANCIAL CONDITION Long-term obligations (includes capital
AND OTHER DATA leases) $ 35,006 $ 11,285 $ 11,771 $ 11,438 $ 6,218
Stockholders' equity $ 79,990 $ 78,622 $74,178 $ 59,059 $ 54,977
Net income as % average equity 3.44% 2.58% 13.33% 12.55% 9.69%
Net income as % total revenues 1.43% 1.06% 4.65% 4.74% 3.82%
Average common shares and share
equivalents used in determining
earnings per share:
Basic 7,033 7,162 7,007 6,655 6,850
Diluted 8,169 7,990 7,669 6,940 7,198
- -----------------------------------------------------------------------------------------------------------------------------------


See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations," made part hereof.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 14




ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

BUSINESS ENVIRONMENT

Stifel Financial Corp. (the "Parent"), through its wholly owned
subsidiaries, principally Stifel, Nicolaus & Company, Incorporated ("Stifel
Nicolaus"), collectively referred to as the "Company," is principally
engaged in retail brokerage, securities trading, investment banking,
investment advisory, and related financial services throughout the United
States. Although the Company has offices throughout the United States, its
major geographic area of concentration is in the Midwest and, to a lesser
extent, the Rocky Mountain Region. The Company's principal customers are
individual investors, with the remaining client base composed of
corporations, municipalities, and institutions.

A significant portion of the Company's revenue is derived from commissions,
investment banking fees, principal transactions, and margin interest
revenue. Changes in economic conditions, inflation, volatility of securities
prices and interest rates, trading volume of securities, demand for
investment banking services, geopolitical events, and competition from other
securities brokerage firms and financial institutions are outside the
control of the Company and may negatively impact these sources of revenue.
Since a significant portion of the Company's expenses are relatively fixed,
and revenues are subject to volatility, results of operations can vary
significantly from period to period.

The Company faces 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. At present, the Company is unable to predict the extent of
these changes and their impact on the Company's results of operations.

The Company's business activities subject it to substantial risks of
potential liability to customers and to regulatory enforcement proceedings.
Participants in the securities industry face an increasing amount of
litigation and arbitration proceedings. Dissatisfied clients regularly make
claims against securities firms and their investment executives for fraud,
unauthorized trading, suitability, churning, failure to supervise, and
breach of fiduciary duty. Underwriters and selling agents may be liable if
they make material misstatements or omit material information in
prospectuses and other communications regarding underwritten offerings of
securities. The Company may be adversely affected by claims of this nature
filed against it currently or in the future.

The cost of attracting and 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 transition pay in the form of guaranteed contracts, upfront
payments, and increased compensation. Since late 1997, the Company has
increased the number of its investment executives and institutional sales
people from 269 to 435 as part of its overall growth strategy. In order to
attract these investment executives, the Company offered transition pay,
principally in the form of upfront loans. These loans are amortized over a
five- to ten-year period. During a period of declining markets, the Company
may be adversely affected, as a portion of these costs remain fixed.

The difficult market and economic conditions that existed in 2001
deteriorated even further in 2002. Despite fairly resilient consumer
spending, stimulated by historically low interest rates that lowered
borrowing costs and increased home mortgage refinancings, economic growth
remained sluggish. Concerns over weak corporate earnings, significant
corporate bankruptcies, corporate governance scandals, heightened
geopolitical tensions in the Middle East, the war on terrorism, and the
threat of war with Iraq served to dissuade the investor further from the
market.

The equity markets posted losses for the third consecutive year, with all
three major equity market indices posting double-digit losses.

The combination of a weak economy, a declining stock market, and heightened
geopolitical concerns resulted in another challenging year for the
securities industry. Stock issuance volumes declined, reflecting falling
stock prices and lack of investor demand. Merger and acquisition volumes
dropped dramatically during 2002, reflecting unstable equity market
conditions.

15 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




BUSINESS ENVIRONMENT (CONTINUED)

As a result of the Federal Reserve Board's lowering of the Fed funds
interest rates eleven times during 2001 and once during the last quarter of
2002, the Company's rates charged to its customers for borrowings were
reduced. Likewise, the interest rates paid by the Company to support
customer and firm borrowings declined. The effect of the reduction in
interest rates, along with the Company's issuance of preferred securities
(see Note L), was to reduce the Company's net interest margin by $1.9
million (19%).

However, for 2001 and 2002, the economic and interest rate environment
provided favorable conditions industry-wide for municipal bond
underwritings, as state and local governments tapped the capital markets to
fund growing budget deficits and to refinance higher interest debt at very
low borrowing costs.

Despite the uncertainty in the market, the Company continued its expansion
efforts, albeit somewhat subdued from the prior years, by opening 7 branch
offices, for a total of 79 in 15 states, and increasing the number of
investment executives to 435 from 428.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United
States requires management to make judgments, assumptions, and estimates
that affect the amounts reported in the Consolidated Financial Statements
and accompanying notes. Note A to the Consolidated Financial Statements in
the Annual Report on Form 10-K for the year ended December 31, 2002,
describes the significant accounting policies and methods used in the
preparation of the Consolidated Financial Statements. Estimates are used
for, but not limited to, the accounting for the fair value of non-marketable
investments and contingencies. Actual results could differ from these
estimates. The following critical accounting policies are impacted
significantly by judgments, assumptions, and estimates used in the
preparation of the Consolidated Financial Statements.

Legal Reserves

The Company records reserves related to legal proceedings resulting from
lawsuits and arbitrations, which arise from its business activities. Some of
these lawsuits and arbitrations claim substantial amounts, including
punitive damage claims. Management has determined that it is likely that
ultimate resolution in favor of the claimant will result in losses to the
Company on certain of these claims. The Company has, after consultation with
outside legal counsel and consideration of facts currently known by
management, recorded estimated losses to the extent they believe certain
claims are probable of loss and the amount of the loss can be reasonably
estimated. Factors considered by management in estimating the Company's
liability are the loss and damages sought by the claimant/plaintiff, the
merits of the claim, the amount of loss in the client's account, the
possibility of wrongdoing on the part of the employee of the Company, the
total cost of defending the litigation and the likelihood of a successful
defense against the claim, and the potential for fines and penalties from
regulatory agencies. Results of litigation and arbitration are inherently
uncertain, and management's assessment of risk associated therewith is
subject to change as the proceedings evolve. After discussion with outside
counsel, management, based on its understanding of the facts, reasonably
estimates a range of loss and accrues what they consider appropriate to
reserve against probable loss for certain claims, which is included in the
balance sheet under the caption "Accounts payable and accrued expenses."

Valuation of Securities and Investments

Securities not readily marketable, held for investment by the Parent and
certain subsidiaries, of $11.2 million and $12.4 million at December 31,
2002 and 2001, respectively, are included under the caption "Investments"
and are carried at fair value. Investment securities of registered
broker-dealer subsidiaries are carried at fair value or amounts that
approximate fair value. The fair value of investments, for which a quoted
market or dealer price is not available, are based on management's
estimates. Among the factors considered by management 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. 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.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 16




The following summarizes the changes in the major categories of revenues and
expenses for the respective periods.



- -----------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
INCREASE (DECREASE) 2002 VS. 2001 2001 VS. 2000
- -----------------------------------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS AMOUNT PERCENTAGE AMOUNT PERCENTAGE
- -----------------------------------------------------------------------------------------------------------------------------------

REVENUES:
Commissions $(1,997) (3)% $(11,592) (14)%
Principal transactions 5,242 17 2,963 11
Investment banking 8,850 24 15,368 71
Interest (7,322) (33) (13,613) (38)
Other 350 1 (1,984) (7)
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 5,123 3 (8,858) (4)
Less: Interest expense (5,403) (46) (8,872) (43)
- -----------------------------------------------------------------------------------------------------------------------------------
Net revenues $10,526 6% $ 14 - -
===================================================================================================================================
NON-INTEREST EXPENSES:
Employee compensation and benefits $ 5,837 5% $ 3,660 3%
Communication and office supplies (62) (1) (80) (1)
Occupancy and equipment rental 958 5 2,553 17
Commissions and floor brokerage 104 3 210 7
Other operating expenses 2,282 11 4,973 31
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expenses $ 9,119 5% $ 11,316 7%
===================================================================================================================================


2002 AS COMPARED TO 2001

The Company posted its seventh consecutive year of record net revenues of
$187.8 million, up from $177.3 million of the previous year.

Net income increased to $2.8 million or $0.34 per diluted share from $2.0
million or $0.25 per diluted share.

Revenues from commissions on agency transactions declined $2.0 million,
principally from continued declining market conditions.

Revenues from principal transactions increased $5.2 million, primarily as a
result of increased trading activity in taxable and tax-exempt fixed income
products as investors sought alternatives to equity-based products.
Principal transactions are primarily derived from over-the-counter equity
and fixed income inventory activities. Inventories of these securities are
maintained to meet client needs. Commissions and realized and unrealized
gains and losses that result from holding and trading these securities are
included in principal transactions revenue.

Investment banking revenues increased $8.9 million due to an increase in
corporate finance revenue of $10.0 million. After posting record revenues in
2001, municipal finance revenues decreased $1.1 million in 2002. During the
year, the Company's Equity Capital Markets group led or co-managed 47
equity, debt, or trust preferred offerings raising more than $4.6 billion,
compared to 21 deals in 2001 totaling $1.2 billion. During the year, the
Company's Fixed Income Capital Markets group participated in 390 deals (146
negotiated and 244 competitive deals) totaling approximately $10.8 billion,
compared to 375 fixed income deals (147 negotiated and 228 competitive)
totaling $10.3 billion in 2001.

Net interest income decreased $1.9 million (19%) due to a decrease in
interest income of $7.3 million, principally from reduced borrowings by
customers caused by poor market conditions and decreased rates charged to
those customers. The decrease in interest income was offset by a $5.4
million decrease in interest expense. Interest on short-term borrowings
decreased $7.0 million, resulting from decreased borrowings as well as
decreased rates on those borrowings and decreased stock loan activity by the
Company to finance customer borrowings on margin accounts. The decrease in
interest expense on short-term borrowings was offset by an increase in
interest expense for long-term borrowings.

17 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




2002 AS COMPARED TO 2001 (CONTINUED)

On April 25, 2002, the Company completed the offering of 1,380,000 shares of
9% Cumulative Trust Preferred Securities (trust preferred securities) for
$34.5 million (see Note L). On April 30, 2002, the Company extinguished the
$10.0 million principal amount of long-term debt bearing interest of 8% per
annum. As a result, long-term interest for the year increased $1.6 million.
Average short-term borrowings decreased $47.8 million, primarily for
customer collateralized borrowings and stock loan activity, with a 49%
decrease in rates.

Other income increased $350,000, primarily resulting from an increase in
money market account fees.

Employee compensation and benefits expense, which comprises 67% of total
expenses, increased $5.8 million. Investment executive compensation, a major
variable component of employee compensation, increased $5.4 million. This
increase is principally from increased revenue production, offset by a
decrease in transition pay, principally enhanced pay, of $500,000. Payroll
taxes and employee benefits expense increased $874,000, offset by a decrease
in fixed salaries of $483,000.

Occupancy and equipment rental expense increased $958,000 as a result of the
Company's continued expansion efforts.

Other operating expenses increased $2.3 million, resulting principally from
an arbitration award against the Company for compensatory damages to two
customers of the Company in connection with activities of a former broker in
its Pikeville, Kentucky office. The Company recorded an approximate $3.5
million after-tax charge for this case and other matters in the third
quarter.

2001 AS COMPARED TO 2000

The Company posted record net revenues for the sixth consecutive year of
$177.3 million, up from $177.2 million in the previous year. Total revenues
decreased to $189.6 million from $198.1 million recorded the previous year.

Net income declined to $2.0 million or $0.25 per diluted share from $9.2
million or $1.20 per diluted share. The decline was primarily due to
decreased net interest income, increased operating costs due to the
Company's expansion efforts, and significant charges for legal-related
matters incurred primarily in connection with historical litigation arising
out of the Company's former Oklahoma operations and the writedown of the
Company's investment portfolio.

Revenues from commissions on agency transactions decreased $11.6 million due
principally to declining market conditions. Revenues from principal
transactions increased $3.0 million, primarily as a result of increased
trading activity in corporate bonds and municipal bonds as investors sought
alternatives to equity-based products.

Investment banking revenues increased $15.4 million due to an increase of
$10.6 million in corporate finance revenues and an increase of $4.8 million
in municipal finance revenues. During the year, the Company's Fixed Income
Capital Markets group participated in 375 fixed income deals (147 negotiated
and 228 competitive) totaling approximately $10.3 billion, compared to 239
(102 negotiated and 137 competitive) deals totaling $6.7 billion in 2000.
The increase resulted from the addition of the Wisconsin municipal banking
office in mid-2000 and the increased number of municipal bond refinancings
resulting from declining interest rates. During 2001, the Company's Equity
Capital Markets group lead- or co-managed 21 equity offerings, principally
for financial institutions, raising more than $1.2 billion, compared to 10
deals in 2000 totaling $424 million.

Net interest income decreased $4.7 million (32%) due to a $13.6 million
decrease in interest income, principally resulting from decreased borrowings
by customers caused by poor market conditions and decreased rates charged to
those customers. The decrease in interest income was offset by a $8.9
million decrease in interest expense, resulting from decreased short-term
borrowings, along with decreased rates on those borrowings, and decreased
stock loan activity by the Company to finance customer borrowings on margin
accounts. Average short-term borrowings decreased $45.2 million and $9.2
million, primarily for customer collateralized bank borrowings and stock
loan activity, respectively, with a 35% decrease in rates.

Other revenues decreased $2.0 million, principally due to current year
writedowns of the Company's investment portfolio of approximately $2.1
million, decreased investment advisory fees of $684,000 resulting from
decreased customer portfolio valuations, decreased payments for order flow
of $288,000, and a decrease of $615,000 resulting primarily from life
insurance proceeds of $220,000 and litigation proceeds of $250,000 received
in the first nine months of 2000. These decreases were offset by an
approximate $1.8 million increase in money market account fees.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 18




2001 AS COMPARED TO 2000 (CONTINUED)

Non-interest expenses increased $11.3 million, resulting from the Company's
continued expansion activities and legal-related expenses in connection with
historical litigation referred to above.

Employee compensation and benefits, which comprises 65% of total expenses,
increased $3.7 million. The fixed component of compensation, primarily
salaries, increased $3.0 million as a result of the Company's expansion
efforts. Investment executive compensation, a major variable component of
employee compensation, decreased $3.8 million due to the decreased revenue
production. This decrease was offset by an increase in transition pay to
investment executives of $2.7 million, principally enhanced payouts and
amortization of upfront loans.

Occupancy and equipment rental increased $2.6 million due to the Company's
expansion efforts.

Other operating expenses increased $5.0 million, resulting from
approximately $1.3 million in legal-related expenses incurred in the second
quarter of 2001 and $3.4 million in the third quarter of 2001, primarily in
connection with historical litigation arising out of the Company's former
Oklahoma operations.

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets are principally highly liquid, consisting mainly of
cash or assets readily convertible into cash. These assets are financed
primarily by the Company's equity capital, trust preferred securities,
customer credit balances, short-term bank loans, proceeds from securities
lending, and other payables. Changes in securities market volumes, related
customer borrowing demands, underwriting activity, and levels of securities
inventory affect the amount of the Company's financing requirements.

In the normal course of business, Stifel Nicolaus borrows from various banks
on a demand basis with company-owned and customer securities pledged as
collateral. Available credit arrangements with banks totaled $255.0 million
at December 31, 2002, of which $211.6 million was unused. There were no
compensating balance requirements under these arrangements. The Company's
floating interest rate on short-term borrowings bore interest at a weighted
average rate of 1.74% and 1.97% at December 31, 2002 and 2001, respectively.
Short-term borrowings utilized for customer loans of $26.4 million and $52.0
million were collateralized by customer-owned securities valued at $71.7
million and $81.4 million at December 31, 2002 and 2001, respectively.
Short-term borrowings of $17.0 million and $14.8 million used to finance
trading securities were collateralized by company-owned securities valued at
$23.4 million and $22.6 million at December 31, 2002 and 2001, respectively.
The value of the customer-owned securities is not reflected in the
consolidated statement of financial condition. The average of such
borrowings was $49.0 million in 2002, $96.8 million in 2001, and $142.0
million in 2000 at effective interest rates of 2.25%, 4.50%, and 6.87%,
respectively.

On April 25, 2002, the Company completed the offering of 1,380,000 shares of
its 9% Cumulative Trust Preferred Securities for net proceeds of
approximately $32.9 million after offering expenses of approximately
$200,000 and underwriting commissions. The Company used the proceeds to pay
down short-term bank loans.

The Company utilized cash flows from operations for general corporate
purposes, to repurchase shares of the Company's common stock, to finance
future expansion activities, and to repay long-term debt. On April 30, 2002,
the Company repaid $10.0 million principal amount, as allowed by the
agreement, of long-term indebtedness due June 30, 2004, payable to Western &
Southern Life Insurance Company, a significant shareholder, bearing interest
of 8.0% per annum.

On February 19, 2002, the Company entered into a $4.0 million sale-leaseback
arrangement for certain office furniture and equipment. The lease expires in
February 2005, with an option to purchase the equipment at the higher of
market value or 15% of the original purchase price. The Company makes
quarterly payments of approximately $320,000. At the time of the sale, the
Company's recorded net book value for the equipment was $2.9 million,
resulting in a deferred gain of $1.1 million, which will be amortized
ratably over the life of the lease. The transaction will be accounted for as
an operating lease.

On May 9, 2002, the Company's board of directors authorized the repurchase
of up to 750,000 additional shares. These purchases may be made on the open
market or in privately negotiated transactions, depending upon market
conditions and other factors. Repurchased shares may be used to meet
obligations under the Company's employee benefit plans and for general
corporate purposes. Further, the Company announced the elimination of future
dividends on its common stock. During the year, the Company repurchased
570,124 shares at an average price of $12.05 per share. The Company is
permitted to buy an additional 839,765 shares under existing board
authorizations.

19 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)

Management believes that funds from operations, available informal
short-term credit arrangements, long-term borrowings, and its ability to
raise additional capital will provide sufficient resources to meet its
present and anticipated financing needs and fund the Company's continued
expansion for the next 12 months.

Stifel Nicolaus is subject to certain requirements of the SEC with regard to
liquidity and capital requirements. At December 31, 2002, Stifel Nicolaus
had net capital of approximately $43.6 million, which exceeded the minimum
net capital requirements by approximately $37.1 million. Stifel Nicolaus may
not be able to pay dividends from its equity capital without prior
regulatory approval if doing so would jeopardize its ability to satisfy
minimum net capital requirements.

INFLATION

The Company's assets are primarily monetary, consisting of cash, securities
inventory, and receivables. 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 the
Company, such as employee compensation and benefits, communications, and
occupancy and equipment, which may not be readily recoverable in the price
of its services.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations." SFAS No. 141 discontinues the use of pooling of interests
method of accounting for business combinations and requires that the
purchase method be used. In August 2001, FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the accounting and
reporting provisions of Accounting Principles Board ("APB") Opinion No. 30,
"Reporting the Results of Operations - Reporting the Effects of a Disposal
of a Segment of a Business, and Extraordinary, Unusual, and Infrequently
Occurring Events and Transactions, for the Disposal of a Segment of a
Business." The adoption of the provisions of these statements did not have a
material impact on the Company's consolidated financial statements.

In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142, effective for fiscal years beginning after December
15, 2001, required discontinuing the amortization of goodwill ($122,000 and
$225,000 for 2001 and 2000, respectively) with indefinite useful lives.
Instead, these assets will be tested periodically for impairment and written
down to their value as necessary. On January 1, 2002, the Company adopted
SFAS No. 142 (see Note F).

In November 2002, FASB issued FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others ("FIN 45"). For financial statements
issued after December 15, 2002, FIN 45 requires that a guarantor make
certain disclosures regarding guarantees or indemnification agreements.
Starting January 1, 2003, FIN 45 will require that a liability be recognized
at the fair value of the guarantee. The Company has adopted the disclosure
provisions of FIN 45 in the accompanying financial statements and does not
expect the liability recognition provisions will have a material impact on
the Company's financial statements.

In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 is to improve financial
reporting by enterprises involved with variable interest entities. FIN 46
applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before February 1,
2003. Although the Company has not finalized its analysis of FIN 46, the
Company does not believe it will be required to consolidate any information
related to variable interest entities.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 20




ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK MANAGEMENT

Risks are an inherent part of the Company's business and activities.
Management of these risks is critical to the Company's soundness and
profitability. Risk management at the Company is a multi-faceted process
that requires communication, judgment, and knowledge of financial products
and markets. The Company's senior management 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 its business
activities are: market, credit, operational, and regulatory and legal.

MARKET RISK

The potential for changes in the value of financial instruments owned by the
Company is referred to as "market risk." Market risk is inherent to
financial instruments, and accordingly, the scope of the Company's market
risk management procedures includes all market risk-sensitive financial
instruments.

The Company trades 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. The Company is also an active market-maker in
over-the-counter equity securities. In connection with these activities, the
Company may maintain inventories in order to ensure availability and to
facilitate customer transactions.

Changes in value of the Company's 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.

The Company manages its trading businesses by product and has 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. Management monitors inventory levels and results of the
trading departments, as well as inventory aging, pricing, concentration, and
securities ratings.



- ----------------------------------------------------------------------------------
(IN THOUSANDS) DECEMBER 31, 2002 DECEMBER 31, 2001
- ----------------------------------------------------------------------------------

Financial instruments with market risk:
Fair value
Federal obligations $ 3,438 $ 4,862
Municipal obligations 16,325 15,046
Corporate obligations 3,454 1,334
- ----------------------------------------------------------------------------------
Total debt securities 23,217 21,242
- ----------------------------------------------------------------------------------
Equity and other securities 3,905 1,552
- ----------------------------------------------------------------------------------
Total $27,122 $22,794
==================================================================================


The table above primarily represents trading inventory associated with our
customer facilitation and market-making activities and includes net long and
short fair values, which is consistent with the way risk exposure is
managed.

21 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




Interest Rate Risk

The Company is 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 its interest-earning assets (including
client loans, stock borrow activities, investments, and inventories) and its
funding sources (including client cash balances, stock lending activities,
and bank borrowings), 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 the Company, with
the rates generally fluctuating in parallel.

The Company manages its 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 the Company's securities inventories have contractual
maturities in excess of five years, these inventories, on average, turn over
several times per year.

Equity Price Risk

The Company is exposed to equity price risk as a consequence of making
markets in equity securities. The Company attempts to reduce the risk of
loss inherent in its inventory of equity securities by monitoring those
security positions constantly throughout each day and establishing position
limits.

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

CREDIT RISK

The Company is engaged in various trading and brokerage activities, with the
counterparties primarily being broker-dealers. In the event counterparties
do not fulfill their obligations, the Company may be exposed to risk. The
risk of default depends on the creditworthiness of the counterparty or
issuer of the instrument. The Company manages 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.

The Company's client activities involve the execution, settlement, and
financing of various transactions on behalf of its clients. Client
activities are transacted on either a cash or margin basis. Credit exposure
associated with the Company's private client business consists primarily of
customer margin accounts, which are monitored daily and are collateralized.
The Company monitors exposure to industry sectors and individual securities
and performs analysis on a regular basis in connection with its margin
lending activities. The Company adjusts its margin requirements if it
believes its risk exposure is not appropriate based on market conditions.

At December 31, 2002, securities, primarily from customer margin and
securities borrowing transactions of approximately $383.2 million were
available to the Company to utilize as collateral on various borrowings or
other purposes. The Company had utilized a portion of these available
securities as collateral for bank loans ($71.7 million), stock loans ($35.3
million), OCC margin requirements ($91.1 million), and customer short sales
($3.0 million).

The Company is subject to concentration risk if it holds large positions,
extends large loans to, or has large commitments with a single counterparty,
borrower, or group of similar counterparties or borrowers (i.e., in the same
industry). Receivables from and payables to clients and stock borrow and
lending activities are both with a large number of clients and
counterparties, and any potential concentration is carefully monitored.
Inventory and investment positions taken and commitments made, including
underwritings, may involve exposure to individual issuers and businesses.
The Company seeks to limit this risk through careful review of
counterparties and borrowers and the use of limits established by senior
management, 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.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 22




OPERATIONAL RISK

Operational risk generally refers to the risk of loss resulting from the
Company's operations, including, but not limited to, improper or
unauthorized execution and processing of transactions, deficiencies in the
Company's technology or financial operating systems, and inadequacies or
breaches in the Company's control processes. The Company operates different
businesses in diverse markets and is reliant on the ability of its 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, the Company could suffer financial loss,
regulatory sanctions, and damage to its reputation. In order to mitigate and
control operational risk, the Company has developed and continues 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
the Company's 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 a potentially sizable adverse legal judgment
and of non-compliance with applicable legal and regulatory requirements. The
Company is generally subject to extensive regulation in the different
jurisdictions in which it conducts its business. The Company has various
procedures addressing issues such as regulatory capital requirements, sales
and trading practices, use of and safekeeping of customer funds, credit
granting, collection activities, money-laundering, and record keeping.

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of
2002 (the "Sarbanes-Oxley Act"). The Sarbanes-Oxley Act represents a
comprehensive revision of laws affecting corporate governance, accounting
obligations, and corporate reporting. The Sarbanes-Oxley Act is applicable
to all companies with equity or debt securities registered under the
Securities Exchange Act of 1934. In particular, the Sarbanes-Oxley Act
establishes: (1) new requirements for audit committees, including
independence, expertise, and responsibilities; (2) additional
responsibilities regarding financial statements for the Chief Executive
Officer and Chief Financial Officer of the reporting company; (3) new
standards for auditors and regulation of audits; (4) increased disclosure
and reporting obligations for the reporting company and its directors and
executive officers; and (5) new and increased civil and criminal penalties
for violations of the securities laws. Many of the provisions became
effective immediately, while other provisions become effective over a period
of 30 to 270 days and are subject to rulemaking by the SEC. Although there
will be modest additional expenses incurred in complying with the provisions
of the Sarbanes-Oxley Act and the resulting regulations, management does not
expect that such compliance will have a material impact on our results of
operations or financial condition.

The research departments of broker-dealer firms are the subject of increased
regulatory scrutiny. In 2002, the SEC, the NYSE, and the NASD adopted
numerous rules affecting research analysts and their interaction with
investment banking departments at member securities firms, as well as other
companies. Also, acting in part pursuant to a mandate contained in the
Sarbanes-Oxley Act, the SEC, the NYSE, and the NASD proposed additional,
heightened restrictions on the interaction between research analysts and
investment banking departments at member securities firms.

The USA Patriot Act of 2001 ("Patriot Act"), enacted in response to the
terrorist attacks on September 11, 2001, contains anti-money laundering and
financial transparency laws and mandates the implementation of various new
regulations applicable to broker-dealers and other financial services
companies, including standards for verifying client identification at
account opening, and obligations to monitor client transactions and report
suspicious activities. Through these and other provisions, the Patriot Act
seeks to promote cooperation among financial institutions, regulators, and
law enforcement entities in identifying parties that may be involved in
terrorism or money laundering. Anti-money laundering laws outside of the
U.S. contain some similar provisions. The increased obligations of financial
institutions, including the Company, to identify their customers, watch for
and report suspicious transactions, respond to requests for information by
regulatory authorities and law enforcement agencies, and share information
with other financial institutions requires the implementation and
maintenance of internal practices, procedures, and controls which will
increase our costs and may subject us to liability.

23 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION


- ---------------------------------------------------------------------------------------------------------
(IN THOUSANDS) DECEMBER 31, 2002 DECEMBER 31, 2001
- ---------------------------------------------------------------------------------------------------------

ASSETS Cash and cash equivalents $ 13,885 $ 16,314
Cash segregated for the exclusive benefit of customers 30 191
---------------------------------------------------------------------------------------------
Receivable from brokers and dealers:
Securities failed to deliver 72 787
Deposits paid for securities borrowed 22,451 42,968
Settlement balances with clearing organizations 10,471 6,045
---------------------------------------------------------------------------------------------
32,994 49,800
---------------------------------------------------------------------------------------------
Receivable from customers, net of allowance for doubtful
receivables of $144 and $229, respectively 264,646 264,155
---------------------------------------------------------------------------------------------
Securities owned, at fair value:
U.S. Government obligations 4,419 5,078
State and municipal obligations 16,680 15,125
Corporate obligations 3,603 1,469
Corporate stocks 6,284 3,674
---------------------------------------------------------------------------------------------
30,986 25,346
---------------------------------------------------------------------------------------------
Investments 30,509 31,183
Memberships in exchanges, at cost 463 463
Office equipment and leasehold improvements, at cost,
net of allowances for depreciation and amortization of
$19,174 and $18,661, respectively 7,277 10,479
Goodwill 3,310 3,310
Loans and advances to investment executives and other
employees, net of allowance for doubtful receivables
from former employees of $677 and $526, respectively 19,977 21,733
Deferred tax asset 5,952 6,062
Other assets 12,947 11,523
---------------------------------------------------------------------------------------------
TOTAL ASSETS $422,976 $440,559
=============================================================================================


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 24





CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

- ---------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) DECEMBER 31, 2002 DECEMBER 31, 2001
- ---------------------------------------------------------------------------------------------------------

LIABILITIES AND Short-term borrowings from banks $ 43,400 $ 66,800
STOCKHOLDERS' -------------------------------------------------------------------------------------
EQUITY Payable to brokers and dealers:
Securities failed to receive 1,243 3,874
Deposits received from securities loaned 56,076 144,022
Settlement balances with clearing organizations 1,597 1,843
-------------------------------------------------------------------------------------
58,916 149,739
-------------------------------------------------------------------------------------
Payable to customers 110,502 44,077
Securities sold, but not yet purchased, at fair
value 3,864 2,552
Drafts payable 19,592 20,968
Accrued employee compensation 20,382 16,645
Obligations under capital leases 506 1,285
Accounts payable and accrued expenses 23,103 22,644
Long-term debt - - 10,000
Guaranteed preferred beneficial interest in
subordinated debt securities 34,500 - -
Other 24,598 24,598
-------------------------------------------------------------------------------------
339,363 359,308
-------------------------------------------------------------------------------------
Liabilities subordinated to claims of general
creditors 3,623 2,629
Stockholders' equity:
Preferred stock -- $1 par value; authorized
3,000,000 shares; none issued
Common stock -- $.15 par value; authorized
30,000,000 shares; issued 7,675,781 shares 1,152 1,152
Additional paid-in capital 53,337 49,595
Retained earnings 36,161 33,929
-------------------------------------------------------------------------------------
90,650 84,676
-------------------------------------------------------------------------------------
Less:
Treasury stock, at cost
732,228 and 357,962 shares, respectively 8,467 3,628
Unamortized expense of restricted stock awards 5 29
Unearned employee stock ownership plan shares,
at cost, 170,809 and 187,073 shares,
respectively 2,188 2,397
-------------------------------------------------------------------------------------
79,990 78,622
-------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $422,976 $440,559
=====================================================================================

See Notes to Consolidated Financial Statements.


25 STIFEL FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF OPERATIONS

- -----------------------------------------------------------------------------------------------------------------------------

YEARS ENDED DECEMBER 31,
----------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------

REVENUES Commissions $ 71,520 $ 73,517 $ 85,109
Principal transactions 36,251 31,009 28,046
Investment banking 45,918 37,068 21,700
Interest 14,544 21,866 35,479
Other 25,880 25,530 27,514
---------------------------------------------------------------------------------------------------------
Total revenues 194,113 188,990 197,848
Less: Interest expense 6,319 11,722 20,594
---------------------------------------------------------------------------------------------------------
Net revenues 187,794 177,268 177,254
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST Employee compensation and benefits 126,726 120,889 117,229
EXPENSES Communications and office supplies 10,737 10,799 10,879
Occupancy and equipment rental 18,631 17,673 15,120
Commissions and floor brokerage 3,373 3,269 3,059
Other operating expenses 23,533 21,251 16,278
---------------------------------------------------------------------------------------------------------
Total non-interest expenses 183,000 173,881 162,565
- -----------------------------------------------------------------------------------------------------------------------------
Income before income taxes 4,794 3,387 14,689
Provision for income taxes 2,014 1,377 5,486
---------------------------------------------------------------------------------------------------------
Net income $ 2,780 $ 2,010 $ 9,203
=========================================================================================================
- -----------------------------------------------------------------------------------------------------------------------------
EARNINGS PER Net income per share:
COMMON SHARE AND Basic earnings per share $ 0.40 $ 0.28 $ 1.31
SHARE EQUIVALENTS Diluted earnings per share $ 0.34 $ 0.25 $ 1.20

---------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 26





CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

- -----------------------------------------------------------------------------------------------------------------------------------

TREASURY STOCK AND
UNEARNED EMPLOYEE UNAMORTIZED
COMMON STOCK ADDITIONAL STOCK OWNERSHIP PLAN EXPENSE OF
(IN THOUSANDS, --------------------- PAID-IN RETAINED -------------------- RESTRICTED
EXCEPT SHARE AMOUNTS) SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT STOCK AWARDS TOTAL
- -----------------------------------------------------------------------------------------------------------------------------------

Balance at January 1, 2000 7,376,176 $1,107 $43,573 $24,546 (943,656) $ (9,797) $(370) $59,059
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends -- common
stock ($.12 per share) - - - - - - (922) - - - - - - (922)
Purchase of treasury shares - - - - - - - - (168,606) (1,738) - - (1,738)
Employee benefit plans 149,795 22 1,026 - - 39,300 441 - - 1,489
Stock options exercised - - - - (208) - - 52,286 510 - - 302
Restricted stock awards - - - - 3 - - 2,000 20 (23) - -
Units and restricted stock
awards amortization - - - - 1,796 - - - - - - 238 2,034
Dividend reinvestment - - - - - - - - 476 5 - - 5
Hanifen, Imhoff Inc.
acquisition - - - - (270) - - 516,984 5,016 - - 4,746
Net income for the year - - - - - - 9,203 - - - - - - 9,203
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2000 7,525,971 1,129 45,920 32,827 (501,216) (5,543) (155) 74,178
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends -- common
stock ($.12 per share) - - - - - - (908) - - - - - - (908)
Purchase of treasury shares - - - - - - - - (95,930) (1,048) - - (1,048)
Employee benefit plans 149,810 23 2,085 - - 23,210 276 - - 2,384
Stock options exercised - - - - (88) - - 28,523 286 - - 198
Units and restricted stock
awards amortization - - - - 1,670 - - - - - - 126 1,796
Dividend reinvestment - - - - 8 - - 378 4 - - 12
Net income for the year - - - - - - 2,010 - - - - - - 2,010
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 7,675,781 1,152 49,595 33,929 (545,035) (6,025) (29) 78,622
- -----------------------------------------------------------------------------------------------------------------------------------
Cash dividends -- common
stock ($.06 per share) - - - - - - (463) - - - - - - (463)
Purchase of treasury shares - - - - - - - - (570,124) (6,862) - - (6,862)
Employee benefit plans - - - - 393 (85) 172,174 1,789 - - 2,097
Stock options exercised - - - - (112) - - 39,802 441 - - 329
Units and restricted stock
awards amortization - - - - 3,461 - - - - - - 24 3,485
Dividend reinvestment - - - - - - - - 146 2 - - 2
Net income for the year - - - - - - 2,780 - - - - - - 2,780
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2002 7,675,781 $1,152 $53,337 $36,161 (903,037) $(10,655) $ (5) $79,990
- -----------------------------------------------------------------------------------------------------------------------------------

See Notes to Consolidated Financial Statements.



27 STIFEL FINANCIAL CORP. AND SUBSIDIARIES





CONSOLIDATED STATEMENTS OF CASH FLOWS
- -----------------------------------------------------------------------------------------------------------------------------------

YEARS ENDED DECEMBER 31,
---------------------------------------------
(IN THOUSANDS) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------

CASH FLOWS Net income $ 2,780 $ 2,010 $ 9,203
FROM OPERATING --------------------------------------------------------------------------------------------------------------
ACTIVITIES Noncash and nonoperating items included in earnings:
Depreciation and amortization 3,390 4,268 4,136
Upfront loans amortization 5,298 5,489 2,836
Deferred items 502 (1,180) 242
Amortization of restricted stock awards, units,
and stock benefits 3,485 1,796 1,157
Losses on investments 927 2,117 321
--------------------------------------------------------------------------------------------------------------
16,382 14,500 17,895
Decrease (increase) in operating receivables:
Customers (491) 41,323 7,556
Brokers and dealers 16,806 (19,070) 11,593
(Decrease) increase in operating payables:
Customers 66,425 3,593 6,841
Brokers and dealers (90,823) (5,783) 8,462
Decrease (increase) in assets:
Cash and U.S. Government securities
segregated for the exclusive benefit
of customers 161 (4) (6)
Securities owned (5,640) (586) 2,613
Notes receivable from officers and employees (3,542) (9,802) (12,316)
Other assets (1,055) 4,984 (4,734)
(Decrease) increase in liabilities:
Securities sold, not yet purchased 1,312 (1,803) 2,319
Drafts payable, accounts payable and accrued
expenses, and accrued employee compensation 2,687 4,865 4,639
--------------------------------------------------------------------------------------------------------------
Cash From Operating Activities $ 2,222 $ 32,217 $ 44,862
--------------------------------------------------------------------------------------------------------------



STIFEL FINANCIAL CORP. AND SUBSIDIARIES 28





CONSOLIDATED STATEMENTS OF CASH FLOWS

- -----------------------------------------------------------------------------------------------------------------------------------

YEARS ENDED DECEMBER 31,
---------------------------------------------
(IN THOUSANDS) 2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------

Cash From Operating Activities --
From Previous Page $ 2,222 $ 32,217 $ 44,862
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS Net payments for short-term borrowings
FROM FINANCING from banks (23,400) (21,450) (34,815)
ACTIVITIES Proceeds from:
Issuance of stock 2,308 1,888 1,796
Sale/lease back of office equipment 3,951 - - - -
Issuance of guaranteed preferred beneficial
interest in subordinated debt securities 34,500 - - - -
Payments for:
Purchases of stock for treasury (6,862) (1,048) (1,738)
Settlement of long-term debt (10,000) - - (370)
Offering cost associated with issuing preferred
securities (1,577) - - - -
Principal payments under
capital lease obligation (795) (841) (1,182)
Repayment of notes assumed in acquisition
of subsidiary - - (1,232) (1,500)
Cash dividends (463) (908) (922)
--------------------------------------------------------------------------------------------------------------
Cash From Financing Activities (2,338) (23,591) (38,731)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS Proceeds from:
FROM INVESTING Cash received in acquisition of subsidiary - - - - 2,927
ACTIVITIES Sale of investments 905 100 543
Payments for:
Acquisition of office equipment and
leasehold improvements (3,183) (4,513) (4,163)
Acquisition of investments (35) (2,488) (7,710)
--------------------------------------------------------------------------------------------------------------
Cash From Investing Activities (2,313) (6,901) (8,403)
--------------------------------------------------------------------------------------------------------------
(Decrease) increase in cash and cash equivalents (2,429) 1,725 (2,272)
Cash and cash equivalents -- beginning of year 16,314 14,589 16,861
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents -- end of year $ 13,885 $ 16,314 $ 14,589
==============================================================================================================
Supplemental disclosures of cash flow information:
Interest payments $ 4,418 $ 12,854 $ 20,405
Income tax payments $ 3,078 $ 2,904 $ 4,928
Schedule of Noncash Investing and Financing Activities:
Fixed assets acquired under capital lease $ 16 $ 355 $ 1,885
Restricted stock awards and units, net of forfeitures $ 4,368 $ 3,341 $ 5,888
Employee stock ownership shares $ 197 $ 188 $ 183
Acquisition of Hanifen, Imhoff Inc. - - - - $ 4,746


See Notes to Consolidated Financial Statements.


29 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES

NATURE OF OPERATIONS

Stifel Financial Corp. (the "Parent"), through its wholly owned subsidiaries,
principally Stifel, Nicolaus & Company, Incorporated ("Stifel Nicolaus"),
collectively referred to as "the Company," is principally engaged in retail
brokerage, securities trading, investment banking, investment advisory, and
related financial services throughout the United States. Although the Company
has offices throughout the United States, its major geographic area of
concentration is in the Midwest. The Company's principal customers are
individual investors, with the remaining client base composed of corporations,
municipalities, and institutions.

BASIS OF PRESENTATION

The consolidated financial statements include the accounts of the Parent and
its wholly owned subsidiaries, principally Stifel Nicolaus. Stifel Nicolaus
is a broker-dealer registered under the Securities Exchange Act of 1934. All
material intercompany balances and transactions are eliminated in
consolidation.

The preparation of 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 and the accrual for litigation. Actual results could differ from
those estimates.

Where appropriate, prior years' financial information has been reclassified
to conform with the current year presentation.

The Company defines cash equivalents as short-term, highly liquid investments
with original maturities of 90 days or less, other than those held for sale
in the ordinary course of business.

SECURITY TRANSACTIONS

Trading and investment securities owned and securities sold, but not yet
purchased are carried at fair value, and unrealized gains and losses are
reflected in the results of operations.

Securities failed to deliver and receive represent the contract value of
securities that have not been delivered or received by settlement date.

Receivables from customers includes amounts due on cash and margin
transactions. The value of securities owned by customers and held as collateral
for these receivables is not reflected in the consolidated statements of
financial condition.

Customer security transactions are recorded on a settlement date basis, with
related commission revenues and expenses recorded on a trade date basis.
Principal securities transactions are recorded on a trade date basis.

FAIR VALUE

The Company's financial instruments are carried at fair value or amounts
that approximate fair value, except for the trust preferred securities
(see Note L). Securities owned and securities sold, but not yet purchased
are valued using quoted market or dealer prices, pricing models, or
management's estimates. Customer receivables, primarily consisting of
floating-rate loans collateralized by customer-owned securities, are charged
interest at rates similar to other such loans made throughout the industry.
The Company's remaining financial instruments are generally short-term in
nature, and their carrying values approximate fair value.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 30




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (CONTINUED)


INVESTMENTS

Securities not readily marketable, held for investment by the Parent and
certain subsidiaries, are included under the caption "Investments" and are
carried at fair value. Investment securities of registered broker-dealer
subsidiaries are carried at fair value or amounts that approximate fair
value. The fair value of investments, for which a quoted market or dealer
price is not available, are based on management's estimates. Among the
factors considered by management 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. 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. These
investments were valued at $11,173 and $12,369 at December 31, 2002 and
2001, respectively.

LOANS AND ADVANCES

The Company offers transition pay, principally in the form of upfront loans,
to investment executives and certain key revenue producers as part of the
Company's overall growth strategy. These loans are generally forgiven over a
five- to ten-year period if the individual satisfies certain conditions,
usually based on continued employment and certain performance standards. If
the individual leaves before the term of the loan expires or fails to meet
certain performance standards, the individual is required to repay the
balance. Management monitors and compares individual investment executive
production to each loan issued to ensure future recoverability.

INVESTMENT BANKING

Investment banking revenue is recorded as follows: management fees and
selling concessions on trade date, underwriting fees net of underwriting
expense upon completion of the underwriting, and other investment banking
revenue upon the completion of the service.

INCOME TAXES

Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial reporting and income tax bases
of assets and liabilities.

COMPREHENSIVE INCOME

The Company had no other comprehensive income items; accordingly, net income
and other comprehensive income are the same.

OTHER

Securities borrowed and securities loaned are recorded at the amount of cash
collateral advanced or received. Securities borrowed transactions require
Stifel Nicolaus to deposit cash or other collateral with the lender
generally in excess of the market value of securities borrowed. With respect
to securities loaned, Stifel Nicolaus receives collateral in the form of
cash or other collateral in an amount generally in excess of the market
value of securities loaned. Stifel Nicolaus monitors the market value of
securities borrowed and loaned on a daily basis, with additional collateral
obtained or refunded as necessary.

Amortization of assets under capital lease is computed on a straight-line
basis over the estimated useful life of the asset. Leasehold improvements
are amortized over the remaining term of the lease. Depreciation of office
equipment is provided over estimated useful lives of three to seven years
using accelerated methods.

Goodwill recognized in business combinations accounted for as purchases is
tested for impairment in accordance with provisions of SFAS 142 adopted in
2002 (see Note F). Prior year goodwill was amortized over 25 years on a
straight-line basis.

Basic earnings per share of common stock is computed by dividing income
available to shareholders by the weighted average number of common shares
outstanding during the periods. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the
entity. Diluted earnings per share include dilutive stock options and stock
units under the treasury stock method.

31 STIFEL FINANCIAL CORP. AND SUBSIDIARIES





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)

NOTE B -- SPECIAL RESERVE BANK ACCOUNT

At December 31, 2002, cash of $30 has been segregated in a special reserve
bank account for the exclusive benefit of customers pursuant to Rule 15c3-3
under the Securities Exchange Act of 1934. Stifel Nicolaus performs a weekly
reserve calculation for proprietary accounts of introducing brokers
("PAIB"). At December 31, 2002, no deposit was required.

NOTE C -- SHORT-TERM BORROWINGS FROM BANKS

In the normal course of business, Stifel Nicolaus borrows from various banks
on a demand basis with company-owned and customer securities pledged as
collateral. Available credit arrangements with banks totaled $255,000 at
December 31, 2002, of which $211,600 was unused. There were no compensating
balance requirements under these arrangements. The Company's floating
interest rate short-term borrowings bore interest at a weighted average rate
of 1.74% and 1.97% at December 31, 2002 and 2001, respectively. Short-term
borrowings utilized for customer loans of $26,400 and $52,050 were
collateralized by customer-owned securities valued at $71,680 and $81,444 at
December 31, 2002 and 2001, respectively. Short-term borrowings of $17,000
and $14,750 used to finance trading securities were collateralized by
company-owned securities valued at $23,368 and $22,605 at December 31, 2002
and 2001, respectively. The average of such borrowings was $48,971 in 2002,
$96,751 in 2001, and $141,993 in 2000 at effective interest rates of 2.25%,
4.50%, and 6.87%, respectively.

NOTE D -- COMMITMENTS AND CONTINGENCIES

In the normal course of business, Stifel Nicolaus enters into underwriting
commitments. Settlement of transactions relating to such underwriting
commitments, which were open December 31, 2002, had no material effect on
the consolidated financial statements.

In connection with margin deposit requirements of The Options Clearing
Corporation, Stifel Nicolaus had pledged cash and customer-owned securities
valued at $91,063. At December 31, 2002, the amounts on deposit satisfied
the minimum margin deposit requirement of $85,335.

In connection with margin deposit requirements of the National Securities
Clearing Corporation, Stifel Nicolaus had pledged cash and firm-owned
securities valued at $500 and a standby letter of credit amounting to
$2,000. At December 31, 2002, the amounts on deposit satisfied the minimum
margin deposit requirement of $688.

The future minimum rental commitments at December 31, 2002, with initial or
remaining non-cancellable lease terms in excess of one year are as follows:



- ------------------------------------------------------------------------------

YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
- ------------------------------------------------------------------------------


2003 $333 $ 8,431
2004 157 7,889
2005 41 5,988
2006 37 4,882
2007 -- 3,695
Thereafter -- 11,605
- ------------------------------------------------------------------------------
Minimum Commitments $568 $42,490
=======
Less Interest (62)
----
Net Present Value of Capital Lease Obligations $506
====


Rental expense for the years ended December 31, 2002, 2001, and 2000,
approximated $9,907, $8,216, and $6,678, respectively.

Office equipment, under capital leases, with a recorded cost of
approximately $2,257, net of amortization of $1,783, and $3,593, net of
amortization of $2,398, at December 31, 2002 and 2001, respectively,
collateralizes the above capital lease obligations and is included in the
consolidated statements of financial condition under the caption of "Office
equipment and leasehold improvements."

Amortization and depreciation expense of assets under capital lease and
owned furniture and equipment for 2002, 2001, and 2000 was $3,390, $4,077,
and $3,842, respectively.


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 32




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share and per share amounts)

NOTE D -- COMMITMENTS AND CONTINGENCIES (CONTINUED)

On February 19, 2002, the Company entered into a $4.0 million sale-leaseback
arrangement for certain office furniture and equipment. The lease expires in
February 2005, with an option to purchase the equipment at the higher of
market value or 15% of the original purchase price. The Company makes
quarterly payments of approximately $320, included in the previous table. At
the time of the sale, the Company's recorded net book value for the
equipment was $2.9 million, resulting in a deferred gain of $1.1 million,
which will be amortized ratably over the life of the lease. The transaction
is being accounted for as an operating lease.

NOTE E -- NET CAPITAL REQUIREMENTS

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

At December 31, 2002, Stifel Nicolaus had net capital of $43,633, which was
13.37% of aggregate debit items and $37,107 in excess of minimum required
net capital.

NOTE F -- GOODWILL

On January 1, 2002, the Company adopted SFAS No. 142. As a result, the
Company ceased amortizing goodwill. The Company tested the goodwill for
impairment in accordance with SFAS No. 142. There were no changes in the
carrying amounts of goodwill for the Company for the year ended December 31,
2002.

As required by SFAS No. 142, the results for the prior years have not been
restated. The reconciliation of reported net income and EPS to adjusted net
income for the years ended December 31, 2001 and 2000 is presented below:



- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 2001 2000
- -------------------------------------------------------------------------------

Reported net income $2,010 $9,203
Add back: goodwill amortization, net of tax 73 141
- -------------------------------------------------------------------------------
Adjusted net income $2,083 $9,344
====== ======
Basic EPS:
Reported net income per share $ 0.28 $ 1.31
Add back: goodwill amortization 0.01 0.02
- -------------------------------------------------------------------------------
Adjusted net income per basic share $ 0.29 $ 1.33
====== ======
Diluted EPS:
Reported net income per share $ 0.25 $ 1.20
Add back: goodwill amortization 0.01 0.02
- -------------------------------------------------------------------------------
Adjusted net income per diluted share $ 0.26 $ 1.22
====== ======



33 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE G -- EMPLOYEE BENEFIT PLANS

The Company has a profit sharing 401(k) plan (the "PSP") covering qualified
employees as defined in the plan. Contributions to the PSP were based upon a
company match of 50% of the employees' first one thousand dollars in annual
contributions. Additional contributions by the Company are discretionary.
Under the PSP, participants can purchase up to 250,000 shares of the
Parent's common stock. The amounts charged to employee compensation and
benefits for the PSP were $425, $486, and $418, for 2002, 2001, and 2000,
respectively.

The Company has an employee stock ownership plan (the "ESOP") covering
qualified employees as defined in the plan. Employer contributions are made
to the ESOP as determined by the Compensation Committee of the Board of
Directors of the Parent on behalf of all eligible employees based upon the
relationship of individual compensation (up to a maximum of $170) to total
compensation. In 1997, the Company purchased 248,063 shares for $3,178 and
contributed these shares to the ESOP. The unallocated shares are being
released for allocation to the participants based upon employer
contributions to fund an internal loan between the Parent and the ESOP. At
December 31, 2002, the plan held 413,610 shares, of which 170,809 shares
with a fair value of $1,903 were unallocated. The Company charged to
employee compensation and benefits $197, $188, and $183 for the ESOP
contributions for 2002, 2001, and 2000, respectively.

NOTE H -- STOCK-BASED COMPENSATION PLANS

The Company has several stock-based compensation plans, which are described
below. The Company applies APB Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans. 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 FASB Statement 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:



- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------------
2002 2001 2000
- -------------------------------------------------------------------------------

Net income
As reported $2,780 $2,010 $9,203
Pro forma $1,845 $1,184 $8,458
- -------------------------------------------------------------------------------
Basic earnings per share
As reported $ 0.40 $ 0.28 $ 1.31
Pro forma $ 0.26 $ 0.17 $ 1.21
- -------------------------------------------------------------------------------
Diluted earnings per share
As reported $ 0.34 $ 0.25 $ 1.20
Pro forma $ 0.23 $ 0.15 $ 1.10
- -------------------------------------------------------------------------------


All option plans are administered by the Compensation Committee of the Board
of Directors of the Parent, which has the authority to interpret the Plans,
determine to whom options may be granted under the Plans, and determine the
terms of each option.

STOCK OPTION/INCENTIVE STOCK AWARD PLANS

The Company has four fixed stock option plans and four incentive stock award
plans. Under the Company's 1983 and 1985 Incentive Stock Option Plans, the
Company granted options up to an aggregate of 450,000 shares to key
employees. Under the Company's 1987 non-qualified stock option plan, the
Company granted options up to an aggregate of 100,000 shares. Under the
Company's 1997 and 2001 Incentive Stock Plan, the Company may grant
incentive stock options, stock appreciation rights, restricted stock,
performance awards, and stock units up to an aggregate of 3,200,000 shares.
Options under these plans are generally granted at 100% of market value at
the date of the grant and expire ten years from the date of grant. The
options generally vest ratably over a three- to five-year vesting period.
The Company has also granted stock options to external board members under a
non-qualified plan and the "Equity Incentive Plan for Non-Employee
Directors." Under the Equity Incentive Plan for Non-Employee Directors, the
Company may grant stock options and stock units up to 150,000 shares. These
options are generally granted at 100% of market value at the date of the
grant and are exercisable six months to one year from date of grant and
expire ten years from date of grant. Under the Stifel, Nicolaus & Company,
Incorporated Wealth Accumulation Plan ("SWAP"), a deferred compensation plan
for Investment Executives, the Company may grant stock units up to 700,000
shares.


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 34




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE H -- STOCK-BASED COMPENSATION PLANS (CONTINUED)

Effective with options granted in 1995 and subsequently, the fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option-pricing model, with the following weighted-average assumptions used
for grants in 2002, 2001, and 2000, respectively: dividend yield of 0.00%,
1.02%, and 1.05%; expected volatility of 32.6%, 34.6%, and 35.9%; risk-free
interest rates of 3.82%, 4.55%, and 6.15%; and expected lives of 5.00 years,
5.97 years, and 6.36 years.

The summary of the status of the Company's fixed stock option plans as of
December 31, 2002, 2001, and 2000, and changes during the years ending on
those dates is presented below:



- -----------------------------------------------------------------------------------------------------------------------------------
2002 2001 2000
--------------------------- --------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
FIXED OPTIONS SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------------------------------

Outstanding at beginning of year 1,368,435 $10.40 1,200,838 $10.11 807,885 $ 9.32
- -----------------------------------------------------------------------------------------------------------------------------------
Granted 293,500 10.91 241,000 11.48 515,100 10.88
Exercised (39,802) 7.54 (28,523) 6.93 (52,286) 5.29
Forfeited (71,600) 10.69 (44,880) 10.63 (69,861) 10.37
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,550,533 $10.56 1,368,435 $10.40 1,200,838 $10.11
===================================================================================================================================
Options exercisable at year-end 748,480 581,957 420,203

Weighted-average fair value of
options granted during the year $3.63 $4.30 $4.63
- -----------------------------------------------------------------------------------------------------------------------------------


The following table summarizes information about fixed stock options
outstanding at December 31, 2002:



- ---------------------------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -----------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES 12/31/02 CONTRACTUAL LIFE EXERCISE PRICE 12/31/02 EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------------------


$ 4.70 - $ 7.56 122,078 3.51 $ 5.90 122,078 $ 5.90
7.74 - 10.40 558,889 7.37 10.06 218,798 9.81
10.44 - 10.83 331,205 6.26 10.64 212,781 10.72
10.88 - 12.07 339,900 8.00 11.40 111,987 11.53
12.10 - 15.31 198,461 7.48 13.26 82,836 14.04
- ---------------------------------------------------------------------------------------------------------------------
$ 4.70 - $15.31 1,550,533 6.98 $10.56 748,480 $10.15
=====================================================================================================================



35 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE H -- STOCK-BASED COMPENSATION PLANS (CONTINUED)

EMPLOYEE STOCK PURCHASE PLAN

Under the 1998 Employee Stock Purchase Plan (the "ESPP"), the Company is
authorized to issue up to 150,000 shares of common stock to its full-time
employees, nearly all of whom are eligible to participate. Under the terms
of the ESPP, employees can choose each year to have a specified percentage
of their compensation withheld in 1% increments not to exceed 10%. The
participant may also specify a maximum dollar amount to be withheld. At the
beginning of every year, each participant is granted an option to purchase
up to 1,000 shares of common stock at a price equal to the lower of 85% of
the beginning-of-year or end-of-year fair market value of the common stock.
Approximately 33% to 35% of eligible employees have participated in the ESPP
in the last three years. Under the ESPP, the Company granted 149,842,
149,675, and 149,810 shares to employees in 2002, 2001, and 2000,
respectively.

Effective with options granted in 1995, the fair value of each employee's
purchase rights is estimated using the Black-Scholes option-pricing model,
with the following weighted-average assumptions used for grants in 2002,
2001, and 2000, respectively: dividend yield of 0.49%, 1.02%, and 1.05%;
expected volatility of 32.6%, 34.6%, and 35.9%; risk-free interest rates of
2.00%, 3.48%, and 6.11%; and expected lives of one year. The
weighted-average fair value of those purchase rights granted in 2002, 2001,
and 2000 was $1.41, $2.37, and $2.34, respectively.

RESTRICTED STOCK AWARDS

Restricted stock awards are made, and shares issued, to certain key
employees without cash payment by the employee. Certain key employees were
granted 2,000 shares of restricted stock, with a fair value of $23, during
2000. At December 31, 2002, restricted stock awards covering 945 shares were
outstanding, with the restrictions expiring at various dates through 2003.
The shares are restricted as to resale. Restrictions lapse ratably over
three- and five-year service periods. The deferred cost of the restricted
stock awards is amortized on a straight-line basis. The Company charged to
employee compensation and benefits $24, $126, and $238 for the amortization
during 2002, 2001, and 2000, respectively.

STOCK UNITS

A stock unit represents the right to receive a share of common stock from
the Parent at a designated time in the future without cash payment by the
employee and is issued in lieu of cash incentive. A deferred compensation
plan is provided to certain revenue producers, officers, and key
administrative employees, whereby a certain percentage of their incentive
compensation is deferred as defined by the plan into Parent stock units with
a 25% matching contribution by the Company. Participants may elect to defer
up to an additional 15% of their incentive compensation with a 25% matching
contribution by the Company. Units generally vest over a three- to five-year
period and are distributable upon vesting or at future specified dates.
Deferred compensation costs are amortized on a straight-line basis over the
vesting period. The Company charged $1,940, $1,263, and $919 to employee
compensation and benefits relating to units granted under this plan for
2002, 2001, and 2000, respectively.

Effective January 1, 1999, Stifel Nicolaus adopted a deferred compensation
plan ("SWAP") for its investment executives ("I.E.s") who achieve certain
levels of production, whereby a certain percentage of their earnings is
deferred as defined by the plan, of which 50% is deferred into Parent stock
units with a 25% matching contribution and 50% into optional investments
chosen by the I.E.s. I.E.s may elect to defer an additional 1% of earnings
into Parent stock units with a 25% matching contribution. In addition,
certain I.E.s, upon joining the firm, may receive Parent stock units in lieu
of transition cash payments. Prior to the adoption of this plan, I.E.s could
elect to invest their individual deferred amounts into several investment
options, including Parent stock. Deferred compensation for both plans cliff
vests over a five-year period. Deferred compensation costs are amortized on
a straight-line basis over the deferral period. Charges to employee
compensation and benefits related to these plans were $1,988, $1,337, and
$320 for 2002, 2001, and 2000, respectively.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 36




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE I -- LEGAL PROCEEDINGS

The Company is a defendant in Robert M. Cochran v. Stifel Financial Corp., a
Delaware corporation, Civil Action No. 19271-NC and Robert M. Cochran v. Stifel
Financial Corp., a Delaware corporation, Civil Action No. 19750-NC, both pending
in the Court of Chancery of the State of Delaware. These matters were filed by a
former officer and director of the Company's subsidiary, Stifel Nicolaus. The
litigation seeks indemnification under Delaware Law and the Company's by-laws
for legal fees and expenses incurred by the former officer in defense of certain
matters brought against him in his capacity as an officer and director of the
subsidiary. Due to the unspecified amount of these claims, the Company cannot
reasonably estimate the amount sought for indemnification. Management 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. However, depending upon the period of resolution, such effects
could be material to the financial results of an individual operating period.

The Company is also 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 and after 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 materially adverse effect
on the Company's consolidated financial condition and results of operations.
However, depending upon the period of resolution, such effects could be
material to the financial results of an individual operating period. 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.

During the year, an NASD Arbitration panel awarded approximately $4,500 in
compensatory damages to two customers of the Company. The award was issued
in connection with the activities of a former broker in its Pikeville,
Kentucky office. The Company believes the award was in disregard of the
applicable law and has asked the federal court to set aside the decision.
The Company recorded an approximate $3,500 after-tax charge for this case
and other matters.

NOTE J -- OFF-BALANCE SHEET CREDIT RISK

As a carrying broker-dealer, Stifel Nicolaus clears and executes
transactions for two introducing broker-dealers. Pursuant to the clearing
agreements, the introducing broker-dealers guarantee the performance of
their customers to Stifel Nicolaus. To the extent the introducing
broker-dealers are unable to satisfy their obligations under the terms of
the respective clearing agreements, Stifel Nicolaus would be secondarily
liable.

Stifel Nicolaus also provides guarantees to securities clearing houses and
exchanges under their standard membership agreement, which requires members
to guarantee the performance of other members. Under the agreement, if
another member becomes unable to satisfy its obligations to the clearing
house, other members would be required to meet shortfalls. Stifel Nicolaus'
liability under these agreements is not quantifiable and may exceed the cash
and securities it has posted as collateral. However, the potential
requirement for Stifel Nicolaus to make payments under these arrangements is
remote. Accordingly, no liability has been recognized for these
transactions.

In the normal course of business, the Company executes, settles, and
finances customer and proprietary securities transactions. These activities
expose the Company to off-balance sheet risk in the event that customers or
other parties fail to satisfy their obligations.

In accordance with industry practice, securities transactions are recorded
on settlement date, generally three business days after trade date. Should a
customer or broker fail to deliver cash or securities as agreed, the Company
may be required to purchase or sell securities at unfavorable market prices.

37 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)

NOTE J -- OFF-BALANCE SHEET CREDIT RISK (CONTINUED)

The Company borrows and lends securities to finance transactions and
facilitate the settlement process, utilizing customer margin securities held
as collateral. The Company monitors the adequacy of collateral levels on a
daily basis. The Company periodically borrows from banks on a collateralized
basis utilizing firm and customer margin securities in compliance with SEC
rules. Should the counterparty fail to return customer securities pledged,
the Company is subject to the risk of acquiring the securities at prevailing
market prices in order to satisfy its customer obligations. The Company
controls its exposure to credit risk by continually monitoring its
counterparties' positions, and, where deemed necessary, the Company may
require a deposit of additional collateral and/or a reduction or
diversification of positions. The Company sells securities it does not
currently own (short sales) and is obligated to subsequently purchase such
securities at prevailing market prices. The Company is exposed to risk of
loss if securities prices increase prior to closing the transactions. The
Company controls its exposure to price risk for short sales through daily
review and setting position and trading limits.

At December 31, 2002, securities, primarily from customer margin and
securities borrowing transactions, of approximately $383,239 were available
to the Company to utilize as collateral on various borrowings or other
purposes. The Company had utilized a portion of these available securities
as collateral for bank loans ($71,680), stock loans ($35,252), OCC margin
requirements ($91,063), and customer short sales ($2,968).

CONCENTRATIONS OF CREDIT RISK

The Company maintains margin and cash security accounts for its customers
located throughout the United States. The majority of the Company's customer
receivables are serviced by branch locations in Missouri and Illinois.

NOTE K -- LONG-TERM DEBT

On April 30, 2002, the Company extinguished the $10.0 million principal
amount, as allowed by the agreement, of long-term debt to Western and
Southern Life Insurance Company, a significant shareholder, due June 30,
2004, bearing interest of 8.0% per annum.

NOTE L -- GUARANTEED PREFERRED BENEFICIAL INTEREST IN SUBORDINATED DEBT
SECURITIES

On April 25, 2002, the Company completed the offering of 1,380,000 shares of
9% Cumulative Trust Preferred Securities ("trust preferred securities") for
$34.5 million (net proceeds of approximately $32.9 million after offering
expenses of approximately $200,000 and underwriting commissions). The trust
preferred securities represent an indirect interest in junior subordinated
debentures purchased from the Company by Stifel Financial Capital Trust I, a
Delaware Trust and wholly owned subsidiary of the Company. The trust
preferred securities may be redeemed by the Company no earlier than June 30,
2007, but no later than June 30, 2032. Distributions of the cumulative cash
distributions will be made quarterly. Undistributed payments will accumulate
interest of 9% per annum compounded quarterly. At December 31, 2002, the
fair market value of the trust preferred securities was $35,811.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 38




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)

NOTE M -- LIABILITIES SUBORDINATED TO CLAIMS OF GENERAL CREDITORS

Stifel Nicolaus has a deferred compensation plan available to I.E.s who
achieve a certain level of production, whereby a certain percentage of their
earnings is deferred as defined by the plan, a portion of which is deferred
in Parent stock units and the balance into optional investment choices.
Stifel Nicolaus obtained approval from the New York Stock Exchange to
subordinate the liability for future payments to I.E.s for that portion of
compensation not deferred in Parent stock units. Beginning with deferrals
made in plan year 1997, Stifel Nicolaus issued cash subordination agreements
to participants in the plan pursuant to provisions of Appendix D of
Securities and Exchange Act ("SEA") Rule 15c3-1 and included in its
computation of net capital the following:



- -------------------------------------------------------------------------------
DISTRIBUTION
PLAN YEAR JANUARY 31, AMOUNT
- -------------------------------------------------------------------------------

1997 2003 $ 710
1998 2004 707
1999 2005 649
2000 2006 811
2001 2007 746
- -------------------------------------------------------------------------------
$3,623
======


NOTE N -- INVESTMENTS IN QUALIFIED MISSOURI BUSINESSES

The Company formed two Limited Liability Corporations, referred to
collectively as "the LLC," to be certified capital companies under the
statutes of the State of Missouri, which provide venture capital for
qualified Missouri businesses, as defined. The LLC issued $4,600
non-interest bearing notes due May 15, 2008, $10,600 non-interest bearing
notes due February 15, 2009, $8,417 non-interest bearing notes due February
15, 2010, and $981 non-interest bearing participating debentures due
December 31, 2010, which are included in the Company's consolidated
statement of financial condition under the caption "Other." Proceeds from
the notes are first invested in zero coupon U.S. Government securities in an
amount sufficient to accrete to the repayment of the notes and are placed in
an irrevocable trust. These securities, valued at approximately $16,129 and
$15,190 at December 31, 2002 and 2001, respectively, are held to maturity
and are included under the caption "Investments." The remaining proceeds are
available for investment in qualified Missouri businesses.

The LLC invests in qualified Missouri businesses in the form of debt,
preferred, and/or common equity. These investments are not readily
marketable and are valued at fair value. These securities, valued at
approximately $2,670 and $2,728 at December 31, 2002 and 2001, respectively,
are included under the caption "Investments." Due to the structure of the
LLC and under the statutes of the State of Missouri, the Company
participates in a portion of the appreciation of these investments.
Management monitors these investments on a continuous basis.

NOTE O -- PREFERRED STOCK PURCHASE RIGHTS

On June 30, 1987, the Company's Board of Directors declared a distribution
of one preferred stock purchase right for each share of the Company's common
stock. On July 23, 1996, the Company's Board of Directors approved the
redemption of these shareholder rights and the adoption of a new Shareholder
Rights Plan. Shareholders of record on August 12, 1996, received a payment
of $.05 per share, representing the redemption price for the existing
rights. This payment was in lieu of the regular quarterly dividend of $.03
per share.

In addition, on July 23, 1996, the Company's Board of Directors authorized
and declared a dividend distribution of one preferred stock purchase right
for each outstanding share of the Company's common stock, par value $0.15
per share. The dividend was distributed to stockholders of record on August
12, 1996. Each right will entitle the registered holder to purchase one
one-hundredth of a share of a Series A Junior Participating Preferred Stock,
par value $1.00 per share, at an exercise price of $35 per right. The rights
become exercisable on the tenth day after public announcement that a person
or group has acquired 15% or more of the Company's common stock or upon
commencement of announcement of intent to make a tender offer for 15% or
more of the outstanding shares of common stock without prior written consent
of the Company. If the Company is acquired by any person after the rights
become exercisable, each right will entitle its holder to purchase shares of
common stock at one-half the then current market price and, in the event of
a subsequent merger or other acquisition of the Company, to buy shares of
common stock of the acquiring entity at one-half of the market price of
those shares. The rights may be redeemed by the Company prior to becoming
exercisable by action of the Board of Directors at a redemption price of
$.01 per right. These rights will expire, if not previously exercised, on
August 12, 2006.

39 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)

NOTE P -- INCOME TAXES

The Company's provision (benefit) for income taxes consists of:



- -------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------
2002 2001 2000
-----------------------------------------

CURRENT:
Federal $1,548 $ 2,734 $4,957
State 356 628 607
- -------------------------------------------------------------------------------
1,904 3,362 5,564

DEFERRED:
Federal 89 (1,614) (69)
State 21 (371) (9)
- -------------------------------------------------------------------------------
110 (1,985) (78)

- -------------------------------------------------------------------------------
$2,014 $ 1,377 $5,486
===============================================================================


The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to income before income taxes for the
following reasons:



- --------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------
2002 2001 2000
-------------------------------------------

Federal tax computed at statutory rates $1,630 $1,152 $4,995
State income taxes, net of federal
income tax benefit 264 170 392
Other, net 120 55 99

- --------------------------------------------------------------------------------------
Provision for income taxes $2,014 $1,377 $5,486
======================================================================================


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 40




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE P -- INCOME TAXES (CONTINUED)

The net deferred tax asset consists of the following temporary differences:



- -----------------------------------------------------------------------------------------------------
DECEMBER 31, 2002 DECEMBER 31, 2001
- -----------------------------------------------------------------------------------------------------

DEFERRED TAX Accruals not currently deductible $3,231 $ 2,166
ASSET Deferred compensation 993 1,248
Hanifen, Imhoff Inc. net operating loss 935 1,041
Deferred revenue 308 955
Office equipment and leasehold improvements,
principally book over tax depreciation 172 513
Investments, principally due to valuation allowance 378 1,114
Other 182 249
-----------------------------------------------------------------------------------
Deferred Tax Asset 6,199 7,286
-----------------------------------------------------------------------------------
DEFERRED TAX Customer and employee receivable (61) (1,046)
LIABILITY Intangible assets, principally tax over book
amortization (186) (178)

-----------------------------------------------------------------------------------
Deferred Tax Liability (247) (1,224)
-----------------------------------------------------------------------------------
Net Deferred Tax Asset $5,952 $ 6,062
===================================================================================


The Company believes that a valuation allowance with respect to the
realization of the total gross deferred tax asset is not necessary. Based on
the Company's historical earnings and taxes previously paid, future
expectations of taxable income, and the future reversals of gross deferred
tax liability, management believes it is more likely than not that the
Company will realize the gross deferred tax asset.

NOTE Q -- RELATED PARTY TRANSACTIONS

Four directors of the Parent are associated with firms that provide legal or
consulting services to the Company. The Company charged approximately $40,
$723, and $342 (primarily for legal fees) to operations for these services
for 2002, 2001, and 2000, respectively.

Two directors of the Parent have a general partnership interest in an
enterprise in which the Company also holds general and limited partnership
interests carried at approximately $122 at December 31, 2002, and $322 at
December 31, 2001.

NOTE R -- SEGMENT REPORTING

The Company's reportable segments include the Private Client Group, Equity
Capital Markets, Fixed Income Capital Markets, and Other. Prior years'
financial information has been reclassified to conform with the current year
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 competitive underwriting and trading. Investment advisory fees
and clearing income is included in "Other."

41 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE R -- SEGMENT REPORTING (CONTINUED)

Intersegment 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 and its preparation is impracticable.

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



- --------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------------------
2002 2001 2000
- --------------------------------------------------------------------------------------

NET REVENUES
Private Client Group $134,326 $127,352 $135,288
Equity Capital Markets 32,011 24,874 17,670
Fixed Income Capital Markets 16,750 18,091 11,009
Other 4,707 6,951 13,287

- --------------------------------------------------------------------------------------
Total Net Revenues $187,794 $177,268 $177,254
======================================================================================

OPERATING CONTRIBUTION
Private Client Group $ 13,096 $ 15,627 $ 25,558
Equity Capital Markets 7,789 3,612 (186)
Fixed Income Capital Markets 3,444 4,363 799
Other/Unallocated Overhead (19,535) (20,215) (11,482)

- --------------------------------------------------------------------------------------
Pre-Tax Income $ 4,794 $ 3,387 $ 14,689
======================================================================================


NOTE S -- EARNINGS PER SHARE

The following table reflects a reconciliation between Basic Earnings Per
Share and Diluted Earnings Per Share.



- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------------------------
2002 2001 2000
------------------------------- ------------------------------- --------------------------------
PER PER PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
NET INCOME (NUMERATOR)(DENOMINATOR) AMOUNT (NUMERATOR)(DENOMINATOR) AMOUNT (NUMERATOR)(DENOMINATOR) AMOUNT
- ------------------------------------------------------------------------------------------------------------------------------------

Basic Earnings Per Share
Income available to shareholders $2,780 7,033,193 $0.40 $2,010 7,161,698 $0.28 $9,203 7,006,565 $1.31
Effect of Dilutive Securities
Employee benefits plans -- 1,135,996 -- -- 828,423 -- -- 661,941 --
Diluted Earnings Per Share
Income available to common
stockholders and assumed
conversions $2,780 8,169,189 $0.34 $2,010 7,990,121 $0.25 $9,203 7,668,506 $1.20
- ------------------------------------------------------------------------------------------------------------------------------------



STIFEL FINANCIAL CORP. AND SUBSIDIARIES 42




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)


NOTE T -- ACQUISITION

On January 12, 2000, the Company completed the acquisition of Hanifen,
Imhoff Inc. ("HII"), a Denver-based investment banking firm. The transaction
has been accounted for as a purchase and provided for a tax-free exchange of
516,984 shares of the Company's stock (valued at $4,745,913) for all of the
outstanding shares of HII. The purchase price has been allocated to net
tangible and intangible assets acquired based on their estimated fair market
values. The remaining purchase price of $2.6 million has been recorded as
goodwill and is included in the statement of financial condition under the
caption "Goodwill."

NOTE U -- RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, FASB issued SFAS No. 141, "Business Combinations." SFAS No.
141 discontinues the use of pooling of interests method of accounting for
business combinations and requires that the purchase method be used. In
August 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," and the accounting and reporting provisions of
Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of a Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring Events and
Transactions, for the Disposal of a Segment of a Business." The adoption of
the provisions of these statements did not have a material impact on the
Company's consolidated financial statements.

In June 2001, FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142, effective for fiscal years beginning after December
15, 2001, required discontinuing the amortization of goodwill ($122 and $225
for 2001 and 2000, respectively) with indefinite useful lives. Instead,
these assets will be tested periodically for impairment and written down to
their value as necessary. On January 1, 2002, the Company adopted SFAS No.
142 (see Note F).

In November 2002, FASB issued FASB Interpretation 45, Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others ("FIN 45"). For financial statements issued after
December 15, 2002, FIN 45 requires that a guarantor make certain disclosures
regarding guarantees or indemnification agreements. Starting January 1,
2003, FIN 45 will require that a liability be recognized at the fair value
of the guarantee. The Company has adopted the disclosure provisions of FIN
45 in the accompanying financial statements and does not expect the
liability recognition provisions will have a material impact on the
Company's financial statements.

In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 is to improve financial
reporting by enterprises involved with variable interest entities. FIN 46
applies immediately to variable interest entities created after January 31,
2003, and to variable interest entities in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim
period beginning after June 15, 2003, to variable interest entities in which
an enterprise holds a variable interest that it acquired before February 1,
2003. Although the Company has not finalized its analysis of FIN 46, the
Company does not believe it will be required to consolidate any information
related to variable interest entities.

* * * * * *


43 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




INDEPENDENT AUDITOR'S REPORT

To the Board of Directors and Stockholders of
Stifel Financial Corp.
St. Louis, Missouri

We have audited the accompanying consolidated statements of financial
condition of Stifel Financial Corp. and Subsidiaries (the "Company") as of
December 31, 2002 and 2001, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years
in the period ended December 31, 2002. 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 auditing standards generally
accepted in the United States of America. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Stifel Financial Corp. and
Subsidiaries at December 31, 2002 and 2001, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2002, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in Note F to the consolidated financial statements, in 2002 the
Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142.


/s/ Deloitte & Touche LLP [Deloitte
& Touche logo]


February 28, 2003
St. Louis, Missouri


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 44




QUARTERLY RESULTS


- ------------------------------------------------------------------------------------------------------------------------------
QUARTERLY OPERATING RESULTS (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------------

BASIC DILUTED
EARNINGS NET EARNINGS EARNINGS
NET (LOSS) BEFORE INCOME (LOSS) (LOSS)
(in thousands, except per share amounts) REVENUE REVENUES INCOME TAXES (LOSS) PER SHARE PER SHARE
- ------------------------------------------------------------------------------------------------------------------------------
YEAR 2002 BY QUARTER
- ------------------------------------------------------------------------------------------------------------------------------

First $49,087 $47,803 $ 2,847 $ 1,701 $ .24 $ .21
Second 51,352 49,548 3,418 2,045 .29 .25
Third 46,801 45,000 (4,296) (2,624) (.38) (.38)
Fourth 46,873 45,443 2,825 1,658 .24 .21
- ------------------------------------------------------------------------------------------------------------------------------
YEAR 2001 BY QUARTER
- ------------------------------------------------------------------------------------------------------------------------------
First $48,410 $44,771 $ 2,634 $ 1,574 $ .22 $ .20
Second 47,534 44,089 1,275 794 .11 .10
Third 46,372 43,425 (2,523) (1,528) (.21) (.21)
Fourth 46,674 44,983 2,001 1,170 .16 .15
- ------------------------------------------------------------------------------------------------------------------------------


The Company charged approximately $3.5 million, net of tax, due primarily to
an arbitration decision in the third quarter of 2002. The Company's third
quarter of 2001 results were adversely impacted by $2.7 million, net of tax,
due to legal-related expenses incurred in connection with historical
litigation arising out of the Company's former Oklahoma operations.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None


45 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding directors is contained in "Election of Directors,"
included in the Registrant's Proxy Statement for the 2003 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

Information regarding the executive officers, as of April 11, 2003, is
contained in "Item 4a. Executive Officers of the Registrant," hereof. There
is no family relationship between any of the directors or named executive
officers.

Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is contained in "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Registrant's Proxy Statement for the 2003
Annual Meeting of Stockholders, which information is incorporated herein by
reference.

ITEM 11. EXECUTIVE COMPENSATION

Information regarding executive compensation is contained in "Executive
Compensation," included in the Registrant's Proxy Statement for the 2003
Annual Meeting of Stockholders, which information is incorporated herein by
reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding security ownership of certain beneficial owners and
management is contained in "Voting Securities and Principal Holders
Thereof," included in the Registrant's Proxy Statement for the 2003 Annual
Meeting of Stockholders, which information is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions is
contained in "Certain Relationships and Related Transactions," included in
the Registrant's Proxy Statement for the 2003 Annual Meeting of
Stockholders, which information is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company's
management, including the Chief Executive Officer and Chief Financial
Officer, carried out an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures pursuant to
Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in alerting them to
material information, on a timely basis, required to be included in the
Company's periodic SEC filings. There have been no significant changes in
the Company's internal controls or in other factors which could
significantly affect internal controls subsequent to the date the Company's
management carried out its evaluation.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 46




PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Consolidated Financial Statements are listed in Item 8 and made
part hereof.

(2) Consolidated Financial Statement Schedules:
Page
----
Independent Auditors' Report 52

Schedule II - Valuation and Qualifying Accounts 53

All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and, therefore, have been omitted.

(3) Exhibits: See Exhibit Index on pages 54 and 55 hereof.

(b) Reports on Form 8-K:

The Company filed a report on Form 8-K dated October 16, 2002.
This Form 8-K contained information under Item 9. Regulation FD
Disclosure. The Company announced that an NASD Arbitration panel
awarded two customers of its subsidiary, Stifel, Nicolaus & Company,
Incorporated, $4.5 million in compensatory damages. The award was
issued in connection with the activities of a former Stifel Nicolaus
broker in its Pikeville, Kentucky office. The Registrant believes the
award was in disregard of the applicable law and has asked the federal
court to set aside the decision.


47 STIFEL FINANCIAL CORP. AND SUBSIDIARIES





SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of St. Louis,
State of Missouri, on the 28th day of March 2003.



STIFEL FINANCIAL CORP.
(Registrant)




By /s/ Ronald J. Kruszewski
------------------------
Ronald J. Kruszewski
Chairman of the Board, President,
Chief Executive Officer, and Director



STIFEL FINANCIAL CORP. AND SUBSIDIARIES 48





Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant on March 28, 2003, in the capacities indicated.


/s/ Ronald J. Kruszewski Chairman of the Board, President,
-------------------- Chief Executive Officer, and Director
Ronald J. Kruszewski (Principal Executive Officer)


/s/ James M. Zemlyak Senior Vice President, Chief Financial
---------------- Officer, and Treasurer (Principal
James M. Zemlyak Financial and Accounting Officer)


/s/ George H. Walker III Chairman Emeritus
--------------------
George H. Walker III


/s/ Robert J. Baer Director
--------------
Robert J. Baer


/s/ Bruce A. Beda Director
-------------
Bruce A. Beda


/s/ Charles A. Dill Director
---------------
Charles A. Dill


/s/ Richard F. Ford Director
---------------
Richard F. Ford


/s/ John J. Goebel Director
--------------
John J. Goebel


/s/ Walter F. Imhoff Director
----------------
Walter F. Imhoff


/s/ Robert E. Lefton Director
----------------
Robert E. Lefton


/s/ Scott B. McCuaig Director
----------------
Scott B. McCuaig


/s/ James M. Oates Director
--------------
James M. Oates

49 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




CERTIFICATION

I, Ronald J. Kruszewski, certify that:

1. I have reviewed this annual report on Form 10-K of Stifel Financial Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations, and cash flows of
the Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant, and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as
of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize, and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and

6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


Date: March 28, 2003 By /s/ Ronald J. Kruszewski
------------------------
Ronald J. Kruszewski
(President and Chief Executive Officer)


STIFEL FINANCIAL CORP. AND SUBSIDIARIES 50




CERTIFICATION

I, James M. Zemlyak, certify that:

1. I have reviewed this annual report on Form 10-K of Stifel Financial Corp.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations, and cash flows of
the Registrant as of, and for, the periods presented in this annual report;

4. The Registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the Registrant, and we have:

a. designed such disclosure controls and procedures to ensure that
material information relating to the Registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;

b. evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and

c. presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as
of the Evaluation Date;

5. The Registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Registrant's auditors and the audit
committee of the Registrant's board of directors (or persons performing the
equivalent function):

a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the Registrant's ability to
record, process, summarize, and report financial data and have
identified for the Registrant's auditors any material weaknesses in
internal controls; and

b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal
controls; and

6. The Registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.


Date: March 28, 2003 By /s/ James M. Zemlyak
--------------------
James M. Zemlyak
(Chief Financial Officer)


51 STIFEL FINANCIAL CORP. AND SUBSIDIARIES






[Deloitte & Touche LLP letterhead]



Independent Auditors' Report






To the Board of Directors and Stockholders of
Stifel Financial Corp.
St. Louis, Missouri:


We have audited the consolidated financial statements of Stifel Financial
Corp. and Subsidiaries (the "Company") as of December 31, 2002 and 2001, and
for each of the three years in the period ended December 31, 2002, and have
issued our report thereon dated February 28, 2003 (which expresses an
unqualified opinion and includes an explanatory paragraph relating to the
adoption of a new accounting principle); such consolidated financial
statements and report are included elsewhere in this Form 10-K. Our audits
also included the consolidated financial statement schedule of Stifel
Financial Corp. and Subsidiaries, listed in Item 15. This consolidated
financial statement schedule is the responsibility of the Corporation's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.


/s/ Deloitte & Touche LLP

February 28, 2003
St. Louis, Missouri

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 52





SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
STIFEL FINANCIAL CORP. AND SUBSIDIARIES

- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT ADDITIONS BALANCE
BEGINNING CHARGED TO COSTS AT END
DESCRIPTION OF PERIOD AND EXPENSES DEDUCTIONS OF PERIOD
- -------------------------------------------------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 2002
Deducted from asset account:
Allowances for doubtful accounts $228,815 $ 0 $ 85,297(1) $143,518
Deducted from asset account:
Allowances for doubtful notes receivables 526,450 581,225 430,337(1) 677,338

- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2001
Deducted from asset account:
Allowances for doubtful accounts 104,435 408,220 283,840(2) 228,815
Deducted from asset account:
Allowances for doubtful notes receivables 331,064 448,713 253,327(1) 526,450

- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000
Deducted from asset account:
Allowances for doubtful accounts 555,891 578,849 1,030,305(2) 104,435
Deducted from asset account:
Allowances for doubtful notes receivables 704,218 68,078 441,232(1) 331,064
Deducted from asset account:
Reserves for securities owned 200,000 -- 200,000(3) --
- -------------------------------------------------------------------------------------------------------------------------


(1) Uncollected notes written off and recoveries
(2) Recovery of account
(3) Securities disposed of



53 STIFEL FINANCIAL CORP. AND SUBSIDIARIES




EXHIBIT INDEX

STIFEL FINANCIAL CORP. AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2002

EXHIBIT
NUMBER DESCRIPTION

3. (a) Restated Certificate of Incorporation and as amended of
Financial filed with the Secretary of State of Delaware on
May 31, 2001, incorporated herein by reference to Exhibit 3.(a)
to Financial's Quarterly Report on Form 10-Q (File No. 001-9305)
for the quarterly period ended June 30, 2001.

(b) Amended and Restated By-Laws of Financial, incorporated herein
by reference to Exhibit 3.(b)(1) to Financial's Annual Report on
Form 10-K (File No. 1-9305) for fiscal year ended July 30, 1993.

4. (a) Preferred Stock Purchase Rights of Financial, incorporated herein
by reference to Financial's Registration Statement on Form 8-A
(File No. 1-9305) filed July 30, 1996.

10. (a)(1) Employment Agreement with George H. Walker III dated August 21,
1987, incorporated herein by reference to Exhibit 10.(c) to
Financial's Annual Report on Form 10-K (File No. 1-9305) for the
fiscal year ended July 31, 1987.*

(a)(2) First Amendment to Employment Agreement with George H.
Walker III, incorporated herein by reference to Exhibit 10.(a)(2)
to Financial's Annual Report on Form 10-K (File No. 1-9305) for
the fiscal year ended July 31, 1992.*

(b) Form of Indemnification Agreement with directors dated as of
June 30, 1987, incorporated herein by reference to Exhibit 10.2
to Financial's Current Report on Form 8-K (date of earliest event
reported - June 22, 1987) filed July 14, 1987.

(c) 1983 Incentive Stock Option Plan of Financial, incorporated
herein by reference to Exhibit 4.(a) to Financial's Registration
Statement on Form S-8 (Registration File No. 2-94326) filed
November 14, 1984.*

(d) 1985 Incentive Stock Option Plan of Financial, incorporated
herein by reference to Exhibit 28C to Financial's Registration
Statement on Form S-8, as amended (Registration File
No. 33-10030) filed November 7, 1986.*

(e) 1987 Non-qualified Stock Option Plan of Financial, incorporated
herein by reference to Exhibit 10.(h) to Financial's Annual
Report on Form 10-K (File No. 1-9305) for the fiscal year ended
July 31, 1987.*

(f) Amendment to 1983 Incentive Stock Option Plan, 1985 Incentive
Stock Option Plan, and 1987 Non-Qualified Stock Option Plan,
incorporated herein by reference to Exhibit 10.(f) to Financial's
Annual Report on Form 10-K (File No. 1-9305) for the fiscal year
ended July 28, 1989.*

(g) Dividend Reinvestment and Stock Purchase Plan of Financial,
incorporated herein by reference to Financial's Registration
Statement on Form S-3 (Registration File No. 33-53699) filed
May 18, 1994.

(h) Amended and Restated 1997 Incentive Plan of Financial,
incorporated herein by reference to Financial's Registration
Statement on Form S-8 (Registration File No. 333-84717) filed on
August 6, 1999.*

(i) 1998 Employee Stock Purchase Plan of Financial, incorporated
herein by reference to Financial's Registration Statement on
Form S-8 (Registration File No. 333-37807) filed October 14,
1997.*

(j)(1) Employment Letter with Ronald J. Kruszewski, incorporated
herein by reference to Exhibit 10.(l) to Financial's Annual
Report on Form 10-K (File No. 1-9305) for the year ended
December 31, 1997.*

(j)(2) Stock Unit Agreement with Ronald J. Kruszewski, incorporated
herein by reference to Exhibit 10.(j)(2) to Financial's Annual
Report on Form 10-K (File No. 1-9305) for the year ended
December 31, 1998.*

(k) Amendment of Loan Agreement with Western & Southern Life
Insurance Company dated February 24, 1999, incorporated herein by
reference to Exhibit 10.(a) to Financial's Quarterly Report on
Form 10-Q (File No. 001-9305) for the quarterly period ended
June 30, 2001.

STIFEL FINANCIAL CORP. AND SUBSIDIARIES 54




(l) 1999 Executive Incentive Performance Plan of Financial,
incorporated herein by reference to Annex B of Financial's Proxy
Statement for the 1999 Annual Meeting of Stockholders filed
March 26, 1999.*

(m) Equity Incentive Plan for Non-Employee Directors of Financial,
incorporated herein by reference to Financial's Registration
Statement on Form S-8 (Registration File No. 333-52694) filed
December 22, 2000.*

(n) Stifel, Nicolaus & Company, Incorporated Wealth Accumulation
Plan, incorporated herein by reference to Financial's
Registration Statement on Form S-8 (Registration File
No. 333-60506) filed May 9, 2001.*

(o) Stifel Nicolaus Profit Sharing 401(k) Plan, incorporated herein
by reference to Financial's Registration Statement on Form S-8
(Registration File No. 333-60516) filed May 9, 2001.*

(p) Stifel Financial Corp. 2001 Incentive Plan, incorporated herein
by reference to Financial's Registration Statement on Form S-8
(Registration File No. 333-82328) filed February 7, 2002.*

(q) Promissory Note dated August 1, 1999, from Tom Prince payable
to Stifel, Nicolaus & Company, Incorporated, incorporated herein
by reference to Financial's Annual Report on Form 10-K (File
No. 001-9305) for the year ended December 31, 2001, filed on
March 27, 2002.*

(r) Promissory Note dated March 5, 2002, from Tom Prince payable to
Stifel, Nicolaus & Company, Incorporated, incorporated herein by
reference to Financial's Annual Report on Form 10-K (File
No. 001-9305) for the year ended December 31, 2001, filed on
March 27, 2002.*

(s) Stock Unit Agreement with James M. Zemlyak dated January 11,
2000, incorporated herein by reference to Exhibit 10.(s) to
Financial's Annual Report on Form 10-K/A Amendment No. 1
(File No. 1-9305) for the year ended December 31, 2001, filed on
April 9, 2002.*

(t) Stock Unit Agreement with Scott B. McCuaig dated December 20,
1998, incorporated herein by reference to Exhibit 10.(t) to
Financial's Annual Report on Form 10-K/A Amendment No. 1
(File No. 1-9305) for the year ended December 31, 2001, filed on
April 9, 2002.*

(u) Amended and Restated Promissory Note dated December 21, 1998,
from Ronald J. Kruszewski payable to Financial, incorporated
herein by reference to Exhibit 10.(u) to Financial's Annual
Report on Form 10-K/A Amendment No. 1 (File No. 1-9305) for the
year ended December 31, 2001, filed on April 9, 2002.*

(v) Third Amendment to Lease by and among EBS Building, L.L.C.,
Stifel Financial Corp., and Stifel, Nicolaus & Company,
Incorporated, dated September 1, 1999, incorporated herein by
reference to EBS Building, L.L.C.'s Annual Report on Form 10-K
(File No. 000-24167) for the year ended December 31, 2001.

(w) Fourth Amendment to Lease by and among EBS Building, L.L.C.,
Stifel Financial Corp., and Stifel, Nicolaus & Company,
Incorporated, dated November 1, 1999, incorporated herein by
reference to EBS Building, L.L.C.'s Annual Report on Form 10-K
(File No. 000-24167) for the year ended December 31, 2001.

(x) Fifth Amendment to Lease by and among EBS Building, L.L.C.,
Stifel Financial Corp., and Stifel, Nicolaus & Company,
Incorporated dated June 11, 2001, incorporated herein by
reference to EBS Building, L.L.C.'s Annual Report on Form 10-K
(File No. 000-24167) for the year ended December 31, 2001.

(y) Stifel Financial Corp. 2003 Employee Stock Purchase Plan,
incorporated herein by reference to Financial's Registration
Statement on Form S-8 (Registration File No. 333-100414) filed
October 8, 2002.*

21. List of Subsidiaries of Financial, filed herewith.

23. Consent of Independent Auditors, filed herewith.

99.1 Certification pursuant to U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.


* Management contract or compensatory plan or arrangement.


55 STIFEL FINANCIAL CORP. AND SUBSIDIARIES






[Stifel Financial Corp. logo]

STIFEL FINANCIAL CORP.
One Financial Plaza
501 North Broadway
St. Louis, Missouri 63102
(314) 342-2000
www.stifel.com