Edgar Filing: STIFEL FINANCIAL CORP

formv10vQ

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q


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

For the Quarterly Period Ended September 30, 2011


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

For the transition period from to

Commission File No. 001-09305

_________________________

STIFEL FINANCIAL CORP.

(Exact name of registrant as specified in its charter)


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

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

(314) 342-2000
(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

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


Large accelerated filer: þ	Accelerated filer: o	Non-accelerated filer: o	Smaller reporting company: o
		(Do not check if a smaller reporting company)

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

The number of shares outstanding of the registrant's common stock, $0.15 par value per share, as of the close of business on November 1, 2011, was 53,720,016, which includes exchangeable shares of TWP Acquisition Company (Canada), Inc., a wholly owned subsidiary of the registrant. These shares are exchangeable at any time into an aggregate of 172,242 shares of common stock of the registrant; entitle the holder to dividend and other rights substantially economically equivalent to those of a share of common stock; and, through a voting trust, entitle the holder to a vote on matters presented to common shareholders.

STIFEL FINANCIAL CORP.

Form 10-Q

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Financial Condition as of September 30, 2011 (unaudited) and December 31, 2010

Consolidated Statements of Operations for the three months and nine months ended September 30, 2011 and September 30, 2010 (unaudited)

Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and September 30, 2010 (unaudited)

Notes to Consolidated Financial Statements (unaudited)

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Item 4. Controls and Procedures

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 6. Exhibits

Signatures

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition


(in thousands)	September 30, 2011		December 31, 2010
	(Unaudited)
Assets
Cash and cash equivalents	$	214,619	$	253,529
Restricted cash		6,880		6,868
Cash segregated for regulatory purposes		26		6,023
Receivables:
Brokerage clients, net		526,774		477,514
Brokers, dealers, and clearing organizations		235,950		247,707
Securities purchased under agreements to resell		121,004		123,617
Trading securities owned, at fair value (includes securities pledged of $354,997 and $272,172, respectively)		526,444		444,170
Available-for-sale securities, at fair value		1,312,784		1,012,714
Held-to-maturity securities, at amortized cost		159,132		52,640
Loans held for sale		114,452		86,344
Bank loans, net of allowance		568,293		389,742
Bank foreclosed assets held for sale		550		1,577
Investments		176,550		178,936
Fixed assets, net		84,643		71,498
Goodwill		309,519		301,919
Intangible assets, net		30,566		34,595
Loans and advances to financial advisors and other employees, net		170,203		181,357
Deferred tax assets, net		179,410		197,139
Other assets		204,565		145,226
Total Assets	$	4,942,364	$	4,213,115

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition (continued)


(in thousands, except share and per share amounts)	September 30, 2011			December 31, 2010
	(Unaudited)
Liabilities and Shareholders’ Equity
Short-term borrowings from banks	$	310,600		$	109,600
Payables:
Brokerage clients		241,849			212,642
Brokers, dealers, and clearing organizations		143,410			114,869
Drafts		45,377			73,248
Securities sold under agreements to repurchase		52,805			109,595
Bank deposits		2,120,763			1,623,568
Trading securities sold, but not yet purchased, at fair value		272,190			200,140
Accrued compensation		159,112			234,512
Accounts payable and accrued expenses		228,235			170,382
Debenture to Stifel Financial Capital Trust II		35,000			35,000
Debenture to Stifel Financial Capital Trust III		35,000			35,000
Debenture to Stifel Financial Capital Trust IV		12,500			12,500
Other		16,815			19,935
		3,673,656			2,950,991
Liabilities subordinated to claims of general creditors		6,957			8,241
Shareholders’ Equity:
Preferred stock - $1 par value; authorized 3,000,000 shares; none issued		—			—
Exchangeable common stock - $0.15 par value; issued 172,242 and 897,618 shares, respectively		26			135
Common stock - $0.15 par value; authorized 97,000,000 shares; issued 53,547,774 and 52,822,428 shares, respectively		8,032			7,923
Additional paid-in-capital		1,065,018			1,082,788
Retained earnings		259,816			232,415
Accumulated other comprehensive income/(loss)		(7,756	)		381
		1,325,136			1,323,642

Treasury stock, at cost, 2,099,972 and 2,235,473 shares, respectively		(63,020	)		(69,238	)
Unearned employee stock ownership plan shares, at cost, 85,417 and 122,024 shares, respectively		(365	)		(521	)
		1,261,751			1,253,883
Total Liabilities and Shareholders’ Equity	$	4,942,364		$	4,213,115

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except per share amounts)	2011		2010			2011		2010
Revenues:
Commissions	$	143,243	$	96,986		$	437,344	$	305,655
Principal transactions		76,650		123,194			249,250		363,537
Asset management and service fees		58,253		50,876			172,914		136,117
Investment banking		37,673		51,656			143,509		127,129
Interest		24,161		17,718			64,246		47,019
Other income		540		3,656			11,352		9,358
Total revenues		340,520		344,086			1,078,615		988,815
Interest expense		6,306		3,698			18,931		8,388
Net revenues		334,214		340,388			1,059,684		980,427

Non-interest expenses:
Compensation and benefits		210,573		395,936			671,678		819,085
Occupancy and equipment rental		30,914		29,559			89,962		81,012
Communications and office supplies		18,838		19,877			56,198		50,220
Commissions and floor brokerage		7,400		7,972			20,943		18,988
Other operating expenses		27,466		29,600			127,321		78,168
Total non-interest expenses		295,191		482,944			966,102		1,047,473

Income/(loss) before income tax expense/(benefit)		39,023		(142,556	)		93,582		(67,046	)
Provision for income taxes/(benefit)		16,719		(58,220	)		36,464		(27,559	)
Net income/(loss)	$	22,304	$	(84,336	)	$	57,118	$	(39,487	)

Earnings per common share:
Basic	$	0.43	$	(1.65	)	$	1.09	$	(0.82	)
Diluted (1)	$	0.35	$	(1.65	)	$	0.90	$	(0.82	)

Weighted average number of common shares outstanding:
Basic		52,367		51,201			52,610		47,865
Diluted		63,152		61,834			63,174		55,593

(1) In accordance with Topic 260, “Earnings Per Share,” earnings per diluted common share is calculated using the basic weighted average number of common shares outstanding in periods a loss is incurred.

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,
(in thousands)	2011			2010
Operating Activities:
Net income/(loss)	$	57,118		$	(39,487)
Adjustments to reconcile net income/(loss) to net cash used in operating activities:
Depreciation and amortization		19,124			17,965
Amortization of loans and advances to financial advisors and other employees		42,262			35,486
Amortization of premium on available-for-sale securities		9,201			5,349
Provision for loan losses and allowance for loans and advances to financial advisors and other employees		986			(916)
Amortization of intangible assets		3,588			3,480
Deferred income taxes		23,777			(60,586)
Stock-based compensation		19,562			183,602
Excess tax benefits from stock-based compensation		(25,188	)		(14,280)
Gain on the sale of investments		(60	)		(1,234)
Other, net		1,156			(5,881)
Decrease/(increase) in operating assets:
Cash segregated for regulatory purposes and restricted cash		5,985			—
Receivables:
Brokerage clients		(49,174	)		(120,389)
Brokers, dealers and clearing organizations		11,757			73,327
Securities purchased under agreements to resell		2,613			(11,221)
Trading securities owned, including those pledged		(82,274	)		(176,664)
Loans originated as mortgages held for sale		(638,596	)		(761,075)
Proceeds from mortgages held for sale		608,853			715,151
Loans and advances to financial advisors and other employees		(30,265	)		(29,362)
Other assets		(37,058	)		32,851
Increase/(decrease) in operating liabilities:
Payables:
Brokerage clients		29,207			3,656
Brokers, dealers and clearing organizations		(63,977	)		72,098
Drafts		(27,871	)		40,923
Trading securities sold, but not yet purchased		72,050			(5,983)
Other liabilities and accrued expenses		(82,110	)		(3,061)
Net cash used in operating activities	$	(129,334	)	$	(46,251)

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows (continued)


	Nine Months Ended September 30,
(in thousands)	2011			2010
Investing Activities:
Proceeds from:
Maturities, calls and principal paydowns on available-for sale securities	$	535,499		$	150,931
Maturities, calls and principal paydowns on held-to-maturity securities		800			—
Sale or maturity of investments		74,437			79,195
Sale of bank branch		—			13,905
Sale of bank foreclosed assets held for sale		808			2,096
Increase in bank loans, net		(178,275	)		(27,531)
Payments for:
Purchase of available-for-sale securities		(868,769	)		(395,646)
Purchase of held-to-maturity securities		(80,115	)		(42,931)
Purchase of investments		(71,991	)		(98,794)
Purchase of fixed assets		(32,561	)		(21,886)
Purchase of bank foreclosed assets held for sale		(225	)		—
Acquisitions		—			(500)
Net cash used in investing activities		(620,392	)		(341,161)
Financing Activities:
Net proceeds from short-term borrowings from banks		201,000			116,300
Decrease in securities sold under agreements to repurchase		(56,790	)		(23,588)
Increase in bank deposits, net		497,195			346,393
Increase in securities loaned		92,518			86,091
Excess tax benefits from stock-based compensation		25,188			14,280
Issuance of common stock					865
Repurchase of common stock		(48,505	)		(91,769)
Reissuance of treasury stock		2,755			2,055
Extinguishment of senior notes		—			(23,000)
Payment of Federal Home Loan Bank advances		—			(2,000)
Extinguishment of subordinated debt		(1,284	)		(1,840)
Net cash provided by financing activities		712,077			423,787

Effect of exchange rate changes on cash		(1,261	)		8,689

(Decrease)/increase in cash and cash equivalents		(38,910	)		45,064
Cash and cash equivalents at beginning of period		253,529			161,820
Cash and cash equivalents at end of period	$	214,619		$	206,884

Supplemental disclosure of cash flow information:
Cash paid for interest	$	18,880		$	8,539
Cash paid for income taxes, net of refunds	$	5,618		$	51,896
Noncash investing and financing activities:
Units, net of forfeitures	$	119,530		$	137,158
Issuance of common stock for acquisition of Thomas Weisel Partners Group, Inc.	$	—		$	271,285

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Notes to Consolidated Financial Statements

NOTE 1 – Nature of Operations and Basis of Presentation

Nature of Operations

Stifel Financial Corp. (the “Parent”), through its wholly owned subsidiaries, principally Stifel, Nicolaus & Company, Incorporated (“Stifel Nicolaus”), Stifel Bank & Trust (“Stifel Bank”), Stifel Nicolaus Limited (“SN Ltd”), Century Securities Associates, Inc. (“CSA”), Stifel Nicolaus Canada, Inc. (“SN Canada”), Thomas Weisel Partners LLC (“TWP”), and Thomas Weisel Partners International Limited (“TWPIL”), is principally engaged in retail brokerage; securities trading; investment banking; investment advisory; retail, consumer, and commercial banking; and related financial services. Although we have offices throughout the United States, two Canadian cities, and three European cities, our major geographic area of concentration is in the Midwest and Mid-Atlantic regions, with a growing presence in the Northeast, Southeast and Western United States. Our company’s principal customers are individual investors, corporations, municipalities, and institutions.

On July 1, 2010, we acquired Thomas Weisel Partners Group, Inc. (“TWPG”), an investment bank focused principally on the growth sectors of the economy, which generates revenues from three principal sources: investment banking, brokerage, and asset management. The investment banking group is comprised of two primary categories of services: corporate finance and strategic advisory. The brokerage group provides equity sales and trading services to institutional investors and offers brokerage and advisory services to high-net-worth individuals and corporate clients. The asset management group consists of: private investment funds, public equity investment products, and distribution management. The employees of the investment banking, research, and institutional brokerage businesses of TWP, a wholly owned subsidiary of TWPG, were transitioned into Stifel Nicolaus during the third quarter of 2010. TWP remains a wholly owned broker-dealer subsidiary of the Parent.

Basis of Presentation

The consolidated financial statements include Stifel Financial Corp. and its wholly owned subsidiaries, principally Stifel Nicolaus and Stifel Bank. All material intercompany balances and transactions have been eliminated. Unless otherwise indicated, the terms “we,” “us,” “our,” or “our company” in this report refer to Stifel Financial Corp. and its wholly owned subsidiaries.

We have prepared the accompanying unaudited consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Pursuant to these rules and regulations, we have omitted certain information and footnote disclosures we normally include in our annual consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles. In management’s opinion, we have made all adjustments (consisting only of normal, recurring adjustments, except as otherwise noted) necessary to fairly present our financial position, results of operations and cash flows. Our interim period operating results do not necessarily indicate the results that may be expected for any other interim period or for the full fiscal year. These financial statements and accompanying notes should be read in conjunction with the consolidated financial statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2010 on file with the SEC.

On April 5, 2011, we effected a three-for-two stock split to shareholders of record as of March 22, 2011. All share and per share information has been retroactively adjusted to reflect the stock split.

Certain amounts from prior periods have been reclassified to conform to the current period’s presentation. The effect of these reclassifications on our company’s previously reported consolidated financial statements was not material.

There have been no material changes in our significant accounting policies, as compared to the significant accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2010.

Consolidation Policies

The consolidated financial statements include the accounts of Stifel Financial Corp. and its subsidiaries. We also have investments or interests in other entities for which we must evaluate whether to consolidate by determining whether we have a controlling financial interest or are considered to be the primary beneficiary. In determining whether to consolidate these entities or not, we determine whether the entity is a voting interest entity or a variable interest entity (“VIE”).

Voting Interest Entity. Voting interest entities are entities that have (i) total equity investment at risk sufficient to fund expected future operations independently, and (ii) equity holders who have the obligation to absorb losses or receive residual returns and the right to make decisions about the entity’s activities. We consolidate voting interest entities when we determine that there is a controlling financial interest, usually ownership of all, or a majority of, the voting interest.

Variable Interest Entity. VIEs are entities that lack one or more of the characteristics of a voting interest entity. We are required to consolidate VIEs in which we are deemed to be the primary beneficiary. The primary beneficiary is defined as the entity that has a variable interest, or a combination of variable interests, that maintains control and provides benefits or will either: (i) absorb a majority of the VIEs expected losses, (ii) receive a majority of the VIEs expected returns, or (iii) both.

We determine whether we are the primary beneficiary of a VIE by first performing a qualitative analysis of the VIE’s control structure, expected losses and expected residual returns. This analysis includes a review of, among other factors, the VIE’s capital structure, contractual terms, which interests create or absorb variability, related party relationships, and the design of the VIE. Where qualitative analysis is not conclusive, we perform a quantitative analysis. We reassess our initial evaluation of an entity as a VIE and our initial determination of whether we are the primary beneficiary of a VIE upon the occurrence of certain reconsideration events. See Note 25 for additional information on variable interest entities.

NOTE 2 – Accounting Guidance

Recently Adopted Accounting Guidance

Allowance for Credit Losses

In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“Update”) No. 2010-20, “Receivables (Topic 310): Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” which requires significant new disclosures about the allowance for credit losses and the credit quality of financing receivables. The requirements are intended to enhance transparency regarding credit losses and the credit quality of loan and lease receivables. Under this guidance, allowance for credit losses and fair value are to be disclosed by portfolio segment, while credit quality information, impaired financing receivables, and nonaccrual status are to be presented by class of financing receivable. Disclosure of the nature and extent, the financial impact, and segment information of troubled debt restructurings are required. The disclosures are to be presented at the level of disaggregation that management uses when assessing and monitoring the portfolio’s risk and performance. This guidance is effective for interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010 for our company). In January 2011, the FASB issued Update 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures About Troubled Debt Restructurings in Update No. 2010-20,” which temporarily delayed the effective date of the disclosures about troubled debt restructurings until interim and annual reporting periods beginning on or after June 15, 2011 (July 1, 2011 for our company). Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on our consolidated financial statements. See Note 8 – Bank Loans.

Fair Value of Financial Instruments

In January 2010, the FASB issued Update No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which amends the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a rollforward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance for the disclosure on the rollforward activities for Level 3 fair value measurements became effective for us with the reporting period beginning January 1, 2011. Other than requiring additional disclosures, the adoption of this new guidance did not have a material impact on our consolidated financial statements. See Note 5 – Fair Value of Financial Instruments.

Troubled Debt Restructurings

In April 2011, the FASB issued Update No. 2011-02, “Receivables (Topic 310): A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring,” which clarifies existing guidance to provide assistance in determining whether a modification of the terms of a receivable meets the definition of a troubled debt restructuring. This guidance is effective for interim and annual reporting periods beginning on or after June 15, 2011 (July 1, 2011 for our company) and should be applied retrospectively to restructurings occurring on or after the beginning of the fiscal year of adoption (January 1, 2011 for our company). The adoption of this new guidance did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Guidance

Goodwill Impairment Testing

In September 2011, the FASB issued Update No. 2011-08 “Testing Goodwill for Impairment,” which amends ASC 350 “Intangibles – Goodwill and Other.” This update permits entities to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount before applying the two-step goodwill impairment test. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. This update is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (January 1, 2012 for our company), with early adoption permitted. We are currently evaluating the impact the new guidance will have on our goodwill impairment testing.

Comprehensive Income

In June 2011, the FASB issued Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” which allows for the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In addition, the guidance eliminates the option of presenting the components of other comprehensive income as part of the statement of changes in stockholders’ equity. This guidance is effective for interim and annual reporting periods beginning after December 15, 2011 (January 1, 2012 for our company). While the adoption will impact where we disclose the components of other comprehensive income in our consolidated financial statements, we do not expect the adoption to have a material impact on those consolidated financial statements.

Fair Value of Financial Instruments

In May 2011, the FASB issued Update No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which generally aligns the principals of measuring fair value and for disclosing information about fair value measurements with International Financial Reporting Standards. This guidance is effective for interim and annual reporting periods beginning after December 15, 2011 (January 1, 2012 for our company). We are currently evaluating the impact the new guidance will have on our consolidated financial statements.

Reconsideration of Effective Control for Repurchase Agreements

In April 2011, the FASB issued Update No. 2011-03, “Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements,” which removes the requirement to consider whether sufficient collateral is held when determining whether to account for repurchase agreements and other agreements that both entitle and obligate the transferor to repurchase or redeem financial assets before their maturity as sales or as secured financings. This guidance is effective for interim and annual reporting periods beginning on or after December 15, 2011 (January 1, 2012 for our company). We do not expect the adoption to have a material impact on our consolidated financial statements.

NOTE 3 – Acquisitions

Thomas Weisel Partners Group, Inc.

On July 1, 2010, we completed the purchase of all the outstanding shares of common stock of TWPG, an investment banking firm based in San Francisco, California. The purchase was completed pursuant to the merger agreement dated April 25, 2010. We issued shares of common stock, including exchangeable shares, to holders of TWPG common stock and restricted stock units to employees of TWPG as consideration for the merger. The fair value of the common stock and restricted stock units was determined using the market price of our common stock on the date of the merger. The merger furthers our company’s mission of building the premier middle-market investment bank with significantly enhanced investment banking, research, and wealth management capabilities.

TWPG’s results of operations have been included in our consolidated financial statements prospectively from the date of acquisition. The investment banking, research, and institutional brokerage businesses of TWPG were integrated with Stifel Nicolaus immediately after the merger; therefore, the revenues, expenses, and net income of the integrated businesses are not distinguishable within the results of our company. The following unaudited pro forma financial data assumes the acquisition had occurred at the beginning of each period presented. Pro forma results have been prepared by adjusting our historical results to include TWPG’s results of operations adjusted for the following changes: amortization expense adjusted as a result of acquisition-date fair value adjustments to intangible assets; interest expense adjusted for revised debt structures; and the income tax effect of applying our statutory tax rates to TWPG’s results. The unaudited pro forma results presented do not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the applicable periods presented, nor does it indicate the results of operations in future periods. Additionally, the unaudited pro forma results do not include the impact of possible business model changes, nor does it consider any potential impacts of current market conditions or revenues, reduction of expenses, asset dispositions, or other factors. The impact of these items could alter the following pro forma results.


	Nine Months Ended September 30, 2010
(in thousands)	(Unaudited)
Total net revenues	$	1,071,055
Net loss		(107,174	)
Loss per share:
Basic	$	(2.24	)
Diluted	$	(2.24	)

NOTE 4 – Receivables From and Payables to Brokers, Dealers and Clearing Organizations

Amounts receivable from brokers, dealers, and clearing organizations at September 30, 2011 and December 31, 2010, included (in thousands):


	September 30, 2011		December 31, 2010

Deposits paid for securities borrowed	$	171,033	$	94,709
Securities failed to deliver		56,304		74,991
Receivable from clearing organizations		8,613		78,007
	$	235,950	$	247,707

Amounts payable to brokers, dealers, and clearing organizations at September 30, 2011 and December 31, 2010, included (in thousands):

	September 30, 2011		December 31, 2010

Deposits received from securities loaned	$	119,533	$	27,907
Securities failed to receive		19,355		78,499
Payable to clearing organizations		4,522		8,463
	$	143,410	$	114,869

Deposits paid for securities borrowed approximate the market value of the securities. Securities failed to deliver and receive represent the contract value of securities that have not been delivered or received on settlement date.

NOTE 5 – Fair Value of Financial Instruments

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

The degree of judgment used in measuring the fair value of financial instruments generally correlates to the level of pricing observability. Pricing observability is impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, and the characteristics specific to the transaction. Financial instruments with readily available active quoted prices for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment used in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have less, or no, pricing observability and a higher degree of judgment used in measuring fair value.

The following is a description of the valuation techniques used to measure fair value on a recurring basis:

Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of three months or less. Actively traded money market funds are measured at their net asset value, which approximates fair value, and classified as Level 1.

Financial Instruments (Trading securities and available-for-sale securities)

When available, the fair value of financial instruments are based on quoted prices in active markets and reported in Level 1. Level 1 financial instruments include highly liquid instruments with quoted prices, such as equities listed in active markets, certain corporate obligations, and U.S. treasury securities.

If quoted prices are not available, fair values are obtained from pricing services, broker quotes, or other model-based valuation techniques with observable inputs, such as the present value of estimated cash flows and reported as Level 2. The nature of these financial instruments include instruments for which quoted prices are available but traded less frequently, instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from or corroborated by observable market data, and instruments that are fair valued using other financial instruments, the parameters of which can be directly observed. Level 2 financial instruments generally include U.S. government securities, mortgage-backed securities, corporate obligations infrequently traded, certain government and municipal obligations, asset-backed securities, and certain equity securities not actively traded.

Level 3 financial instruments have little to no pricing observability as of the report date. These financial instruments do not have active two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. We have identified Level 3 financial instruments to include certain corporate obligations with unobservable pricing inputs, airplane trust certificates, and certain municipal obligations, which include auction rate securities (“ARS”). Investments in certain corporate obligations, airplane trust certificates and municipal obligations with unobservable inputs are valued using management’s best estimate of fair value, where the inputs require significant management judgment. ARS are valued based upon our expectations of issuer redemptions and using internal discounted cash flow models that utilize unobservable inputs.

Investments

Investments valued at fair value include ARS, investments in mutual funds, U.S. treasury securities, investments in public companies, private equity securities, partnerships, and warrants of public or private companies.

Investments in certain public companies, mutual funds and U.S. treasury securities are valued based on quoted prices in active markets and reported in Level 1. Investments in certain private equity securities and partnerships with unobservable inputs and ARS for which the market has been dislocated and largely ceased to function are reported as Level 3 assets. Investments in certain equity securities with unobservable inputs are valued using management’s best estimate of fair value, where the inputs require significant management judgment. ARS are valued based upon our expectations of issuer redemptions and using internal discounted cash flow models.

Investments in partnerships and other investments include our general and limited partnership interests in investment partnerships and direct investments in non-public companies. The net assets of investment partnerships consist primarily of investments in non-marketable securities. The underlying investments held by such partnerships and direct investments in non-public companies are valued based on the estimated fair value ultimately determined by us in our capacity as general partner or investor and, in the case of an investment in an unaffiliated investment partnership, are based on financial statements prepared by an unaffiliated general partner.

Warrants are valued based upon the Black-Scholes option-pricing model that uses discount rates and stock volatility factors of comparable companies as inputs. These inputs are subject to management judgment to account for differences between the measured investment and comparable companies and are reported as Level 3 assets.

The valuation of these investments requires significant management judgment due to the absence of quoted market prices, inherent lack of liquidity, and long-term nature of these assets. As a result, these values cannot be determined with precision and the calculated fair value estimates may not be realizable in a current sale or immediate settlement of the instrument.

Derivatives

Derivatives are valued using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require market observable inputs, including contractual terms, market prices, yield curves, credit curves, and measures of volatility. These measurements are classified as Level 2 and are used to value interest rate swaps.

The following table summarizes the valuation of our financial instruments by pricing observability levels as of September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	16,152	$	16,152	$	—	$	—
Trading securities owned:
U.S. government agency securities		71,333		—		71,333		—
U.S. government securities		12,202		12,202		—		—
Corporate securities:
Fixed income securities		264,623		61,151		202,271		1,201
Equity securities		40,886		40,515		371		—
State and municipal securities		137,400		—		137,400		—
Total trading securities owned		526,444		113,868		411,375		1,201
Available-for-sale securities:
U.S. government securities		904		—		904		—
State and municipal securities		84,012		—		17,388		66,624
Mortgage-backed securities:
Agency		506,767		—		506,767		—
Commercial		265,925		—		265,925		—
Non-agency		18,257		—		18,257		—
Corporate fixed income securities		409,817		301,871		95,946		12,000
Asset-backed securities		27,102		—		27,102		—
Total available-for-sale securities		1,312,784		301,871		932,289		78,624
Investments:
Corporate equity securities		4,676		4,283		393		—
Mutual funds		33,811		33,811		—		—
Auction rate securities:
Equity securities		64,203		—		—		64,203
Municipal securities		7,044		—		—		7,044
Other		38,816		436		777		37,603
Total investments		148,550		38,530		1,170		108,850
	$	2,003,930	$	470,421	$	1,344,834	$	188,675

The Company's investment in a senior preferred interest in Miller Buckfire & Co. LLC, which is included in investments in the consolidated statements of financial condition, is carried at cost and therefore not included in the above analysis of fair value at September 30, 2011.

	September 30, 2011
	Total			Level 1		Level 2		Level 3
Liabilities:
Trading securities sold, but not yet purchased:
U.S. government securities		$	109,568	$	109,568	$	—	$	—
Corporate securities:
Fixed income securities			129,226		55,375		73,851		—
Equity securities			33,071		33,032		39		—
State and municipal securities			325		—		325		—
Total trading securities sold, but not yet purchased			272,190		197,975		74,215		—
Securities sold, but not yet purchased (1)			16,815		16,815		—		—
Derivative contracts (2)			25,672		—		25,672		—
		$	314,677	$	214,790	$	99,887	$	—

(1) Included in other liabilities in the consolidated statements of financial condition.
(2) Included in accounts payable and accrued expenses in the consolidated statements of financial condition.

	December 31, 2010
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	15,675	$	15,675	$	—	$	—
Trading securities owned:
U.S. government agency securities		86,882		—		86,882		—
U.S. government securities		9,038		9,038		—		—
Corporate securities:
Fixed income securities		221,145		47,001		133,901		40,243
Equity securities		46,877		46,395		482		—
State and municipal securities		80,228		—		80,228		—
Total trading securities owned		444,170		102,434		301,493		40,243
Available-for-sale securities:
U.S. government agency securities		25,030		—		25,030		—
State and municipal securities		26,343		—		14,907		11,436
Mortgage-backed securities:
Agency		697,163		—		697,163		—
Commercial		67,996		—		67,996		—
Non-agency		29,273		—		29,273		—
Corporate fixed income securities		154,901		34,897		120,004		—
Asset-backed securities		12,008		—		12,008		—
Total available-for-sale securities		1,012,714		34,897		966,381		11,436
Investments:
Corporate equity securities		3,335		3,335		—		—
Mutual funds		32,193		32,193		—		—
U.S. government securities		8,751		8,751		—		—
Auction rate securities:
Equity securities		76,826		—		—		76,826
Municipal securities		6,533		—		—		6,533
Other		51,298		10,489		2,307		38,502
Total investments		178,936		54,768		2,307		121,861
	$	1,651,495	$	207,774	$	1,270,181	$	173,540

Liabilities:
Trading securities sold, but not yet purchased:
U.S. government securities	$	131,561	$	131,561	$	—	$	—
U.S. government agency securities		664		—		664		—
Corporate securities:
Fixed income securities		61,026		18,815		37,526		4,685
Equity securities		6,800		6,780		20		—
State and municipal securities		89		—		89		—
Total trading securities sold, but not yet purchased		200,140		157,156		38,299		4,685
Securities sold, but not yet purchased (1)		19,935		19,935		—		—
Derivative contracts (2)		9,259		—		9,259		—
	$	229,334	$	177,091	$	47,558	$	4,685

(1) Included in other liabilities in the consolidated statements of financial condition.
(2) Included in accounts payable and accrued expenses in the consolidated statements of financial condition.

The following table summarizes the changes in fair value carrying values associated with Level 3 financial instruments during the three and nine months ended September 30, 2011 (in thousands):

	Three Months Ended September 30, 2011
	Financial Assets																	Financial Liabilities
				Available-for-sale					Investments
	Corporate Fixed Income Securities (1)			State and Municipal Securities			Corporate Fixed Income Securities		Auction Rate Securities – Equity			Auction Rate Securities – Municipal			Other			Corporate Fixed Income Securities (2)

Balance at June 30, 2011	$	18,342		$	44,678		$	—	$	66,616		$	7,117		$	38,958		$	2,435
Unrealized gains/(losses):
Included in changes in net assets (3)		37			—			—		162			52			(692	)		—
Included in OCI (4)		—			316			—		—			—			—			—
Realized gains/(losses) (3)		(380	)		43											(94	)		(16	)
Purchases		66			21,987			12,000		1,650			—			170			—
Sales		(16,500	)		—			—		—			—			—			(2,419	)
Redemptions		(112	)		(400	)		—		(4,225	)		(125	)		(739	)		—
Transfers:
Into Level 3		—			—			—		—			—			—			—
Out of Level 3		(252	)		—			—		—			—			—			—
Net change		(17,141	)		21,946			12,000		(2,413	)		(73	)		(1,355	)		(2,435	)
Balance at September 30, 2011	$	1,201		$	66,624		$	12,000	$	64,203		$	7,044		$	37,603		$	—

	Nine Months Ended September 30, 2011
	Financial Assets																	Financial Liabilities
				Available-for-sale					Investments
	Corporate Fixed Income Securities (1)			State and Municipal Securities			Corporate Fixed Income Securities		Auction Rate Securities – Equity			Auction Rate Securities – Municipal			Other			Corporate Fixed Income Securities (2)

Balance at December 31, 2010	$	40,243		$	11,436		$	—	$	76,826		$	6,533		$	38,502		$	4,685
Unrealized gains/(losses):
Included in changes in net assets (3)		(283	)		—			—		452			(44	)		2,872			—
Included in OCI (4)		—			2,403			—		—			—			—			—
Realized gains/(losses) (3)		356			858					—			—			(681	)		(52	)
Purchases		166,549			48,974			12,000		3,725			4,105			994			6,663
Sales		(198,572	)		(24,126	)		—		—			(2,900	)					(11,296	)
Redemptions		(828	)		(775	)		—		(16,800	)		(650	)		(4,324	)		—
Transfers:
Into Level 3					27,854			—		—			—			240			—
Out of Level 3		(6,264	)		—			—		—			—			—			—
Net change		(39,042	)		55,188			12,000		(12,623	)		511			(899	)		(4,685	)
Balance at September 30, 2011	$	1,201		$	66,624		$	12,000	$	64,203		$	7,044		$	37,603		$	—

(1) Included in trading securities owned in the consolidated statements of financial condition.
(2) Included in trading securities sold, but not yet purchased in the consolidated statements of financial condition.
(3) Realized and unrealized gains/(losses) related to trading securities and investments are reported in other income in the consolidated statements of operations.
(4) Unrealized gains related to available-for-sale securities are reported in accumulated other comprehensive income/(loss) in the consolidated statements of financial condition.

The results included in the table above are only a component of the overall investment strategies of our company. The table above does not present Level 1 or Level 2 valued assets or liabilities. The changes to our company’s Level 3 classified instruments were principally a result of: purchases of ARS from our customers, unrealized gains and losses, and redemptions of ARS at par during the three and nine months ended September 30, 2011. There were $0.2 million and $6.2 million of transfers from Level 3 to Level 2 during the three and nine months ended September 30, 2011, respectively, related to securities for which market trades were observed that provided transparency into the valuation of these assets. There were $28.1 million of transfers of financial assets into Level 3 during the nine months ended September 30, 2011 primarily related to municipal ARS, which we transferred from held-to-maturity to available-for-sale during the second quarter of 2011. Given that there has been no recent trade activity observed, we transferred them into available-for-sale as Level 3 assets. There were no changes in unrealized gains/(losses) recorded in earnings for the three and nine months ended September 30, 2011 relating to Level 3 assets still held at September 30, 2011.

Transfers Within the Fair Value Hierarchy

We assess our financial instruments on a quarterly basis to determine the appropriate classification within the fair value hierarchy, as defined by Topic 820. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial instruments among the levels are deemed to occur at the beginning of the reporting period. There were $4.8 million and $29.3 million of transfers of financial assets from Level 2 to Level 1 during the three and nine months ended September 30, 2011, respectively, primarily related to tax-exempt securities and equity securities for which market trades were observed that provided transparency into the valuation of these assets. There were $5.1 million and $22.3 million of transfers of financial assets from Level 1 to Level 2 during the three and nine months ended September 30, 2011, respectively, primarily related to tax-exempt securities for which there were low volumes of recent trade activity observed.

Fair Value of Financial Instruments

The following reflects the fair value of financial instruments, as of September 30, 2011 and December 31, 2010, whether or not recognized in the consolidated statements of financial condition at fair value (in thousands).


	September 30, 2011				December 31, 2010
	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Financial assets:
Cash and cash equivalents	$	214,619	$	214,619	$	253,529	$	253,529
Restricted cash		6,880		6,880		6,868		6,868
Cash segregated for regulatory purposes		26		26		6,023		6,023
Securities purchased under agreements to resell		121,004		121,004		123,617		123,617
Trading securities owned		526,444		526,444		444,170		444,170
Available-for-sale securities		1,312,784		1,312,784		1,012,714		1,012,714
Held-to-maturity securities		159,132		157,085		52,640		52,984
Loans held for sale		114,452		114,452		86,344		86,344
Bank loans		568,293		571,716		389,742		376,176
Investments		176,550		176,550		178,936		178,936
Financial liabilities:
Securities sold under agreements to repurchase	$	52,805	$	52,805	$	109,595	$	109,595
Non-interest-bearing deposits		21,405		21,398		8,197		7,980
Interest-bearing deposits		2,099,358		2,072,029		1,615,371		1,565,199
Trading securities sold, but not yet purchased		272,190		272,190		200,140		200,140
Securities sold, but not yet purchased (1)		16,815		16,815		19,935		19,935
Derivative contracts (2)		25,672		25,672		9,259		9,259
Liabilities subordinated to the claims of general creditors		6,957		6,617		8,241		7,739

(1) Included in other liabilities in the consolidated statements of financial condition.
(2) Included in accounts payable and accrued expenses in the consolidated statements of financial condition.

The following, as supplemented by the discussion above, describes the valuation techniques used in estimating the fair value of our financial instruments as of September 30, 2011 and December 31, 2010.

Financial Assets

Securities Purchased Under Agreements to Resell

Securities purchased under agreements to resell are collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The carrying values at September 30, 2011 and December 31, 2010 approximate fair value.

Held-to-Maturity Securities

Securities held to maturity are recorded at amortized cost based on our company’s positive intent and ability to hold these securities to maturity. Securities held to maturity include asset-backed securities, consisting of corporate obligations, collateralized debt obligation securities and ARS. The estimated fair value, included in the above table, is determined using several factors; however, primary weight is given to discounted cash flow modeling techniques that incorporated an estimated discount rate based upon recent observable debt security issuances with similar characteristics.

The decrease in estimated fair value below the carrying amount of our asset-backed security at September 30, 2011 and December 31, 2010 is primarily due to unrealized losses that were caused by: illiquid markets for collateralized debt obligations, global disruptions in the credit markets, increased supply of collateralized debt obligation secondary market securities from distressed sellers, and difficult times in the banking sector.

Loans Held for Sale

Loans held for sale consist of fixed-rate and adjustable-rate residential real estate mortgage loans intended for sale. Loans held for sale are stated at lower of cost or fair value. Fair value is determined based on prevailing market prices for loans with similar characteristics or on sale contract prices. The carrying values at September 30, 2011 and December 31, 2010 approximate fair value.

Bank Loans

The fair values of mortgage loans and commercial loans were estimated using a discounted cash flow method, a form of the income approach. Discount rates were determined considering rates at which similar portfolios of loans would be made under current conditions and considering liquidity spreads applicable to each loan portfolio based on the secondary market.

Financial Liabilities

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are collateralized financing transactions that are recorded at their contractual amounts plus accrued interest. The carrying values at September 30, 2011 and December 31, 2010 approximate fair value.

Non-Interest-Bearing Demand Deposits

The fair value of non-interest-bearing demand deposits was estimated using a discounted cash flow method.

Interest-Bearing Deposits

The fair value of money market and savings accounts represents the amounts payable on demand. The fair value of other interest-bearing deposits, including certificates of deposit, was calculated by discounting the future cash flows using discount rates based on the expected current market rates for similar products with similar remaining terms.

Liabilities Subordinated to Claims of General Creditors

The fair value of subordinated debt was measured using the interest rates commensurate with borrowings of similar terms.

These fair value disclosures represent our best estimates based on relevant market information and information about the financial instruments. Fair value estimates are based on judgments regarding future expected losses, current economic conditions, risk characteristics of the various instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in the above methodologies and assumptions could significantly affect the estimates.

NOTE 6 – Trading Securities Owned and Trading Securities Sold, But Not Yet Purchased

The components of trading securities owned and trading securities sold, but not yet purchased, at September 30, 2011 and December 31, 2010, are as follows (in thousands):


	September 30, 2011		December 31, 2010
Trading securities owned:
U.S. government agency securities	$	71,333	$	86,882
U.S. government securities		12,202		9,038
Corporate securities:
Fixed income securities		264,623		221,145
Equity securities		40,886		46,877
State and municipal securities		137,400		80,228
	$	526,444	$	444,170
Trading securities sold, but not yet purchased:
U.S. government securities	$	109,568	$	131,561
U.S. government agency securities		—		664
Corporate securities:
Fixed income securities		129,226		61,026
Equity securities		33,071		6,800
State and municipal securities		325		89
	$	272,190	$	200,140

At September 30, 2011 and December 31, 2010, trading securities owned in the amount of $355.0 million and $272.2 million, respectively, were pledged as collateral for our repurchase agreements and short-term borrowings.

Trading securities sold, but not yet purchased, represent obligations of our company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. We are obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected in the consolidated statements of financial condition.

NOTE 7 – Available-for-Sale and Held-to-Maturity Securities

The following tables provide a summary of the amortized cost and fair values of the available-for-sale securities and held-to-maturity securities at September 30, 2011 and December 31, 2010 (in thousands):

	September 30, 2011
	Amortized cost			Gross unrealized gains (1)			Gross unrealized losses (1)				Estimated fair value
Available-for-sale
U.S. government securities		$	905		$	—		$	(1	)		$	904
State and municipal securities			79,714			4,490			(192	)			84,012
Mortgage-backed securities:
Agency			495,524			12,021			(778	)			506,767
Commercial			266,643			1,102			(1,820	)			265,925
Non-agency			19,125			117			(985	)			18,257
Corporate fixed income securities			412,433			1,834			(4,450	)			409,817
Asset-backed securities			26,677			553			(128	)			27,102
		$	1,301,021		$	20,117		$	(8,354	)		$	1,312,784
Held-to-maturity (2)
Corporate fixed income securities		$	55,569		$	55		$	(2,206	)		$	53,418
Asset-backed securities			82,224			2,734			(3,235	)			81,723
Municipal auction rate securities			21,339			955			(350	)			21,944
		$	159,132		$	3,744		$	(5,791	)		$	157,085

	December 31, 2010
	Amortized cost			Gross unrealized gains (1)			Gross unrealized losses (1)				Estimated fair value
Available-for-sale
U.S. government securities		$	24,972		$	58		$	—			$	25,030
State and municipal securities			26,678			727			(1,062	)			26,343
Mortgage-backed securities:
Agency			692,922			6,938			(2,697	)			697,163
Commercial			66,912			1,212			(128	)			67,996
Non-agency			29,319			744			(790	)			29,273
Corporate fixed income securities			153,523			1,705			(327	)			154,901
Asset-backed securities			11,331			677			—				12,008
		$	1,005,657		$	12,061		$	(5,004	)		$	1,012,714
Held-to-maturity (2)
Municipal auction rate securities		$	43,719		$	3,803		$	(171	)		$	47,351
Asset-backed securities			8,921			198			(3,486	)			5,633
		$	52,640		$	4,001		$	(3,657	)		$	52,984

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

(2)	Held-to-maturity securities are carried in the consolidated statements of financial condition at amortized cost, and the changes in the value of these securities, other than impairment charges, are not reported on the consolidated financial statements.

For the three and nine months ended September 30, 2011, available-for-sale securities with an aggregate par value of $22.0 million and $65.1 million, respectively, were called by the issuing agencies or matured, resulting in no gains or losses recorded in the consolidated statement of operations. Additionally, for the three and nine months ended September 30, 2011, Stifel Bank received principal payments on mortgage-backed securities of $43.0 million and $164.2 million, respectively. During the three months ended September 30, 2011 unrealized losses, net of deferred tax benefits, of $3.3 million were recorded in accumulated other comprehensive income/(loss) in the consolidated statements of financial condition. During the three months ended September 30, 2010, unrealized gains, net of deferred taxes, of $0.1 million were recorded in accumulated other comprehensive income/(loss) in the consolidated statements of financial condition. During the nine months ended September 30, 2011 and 2010, unrealized gains, net of deferred taxes, of $3.3 million and $7.6 million, respectively, were recorded in accumulated other comprehensive income/(loss) in the consolidated statements of financial condition.

During the second quarter of 2011, we determined that we no longer had the intent to hold $32.9 million of held-to-maturity securities to maturity. As a result, we reclassified $27.8 million carrying value of municipal auction rate securities from held-to-maturity to available-for-sale.

During the second quarter of 2011, we reclassified $64.6 million of securities available for sale to securities held to maturity. Management determined that it has both the positive intent and ability to hold these securities to maturity. The reclassification of these securities was accounted for at fair value. On the date of transfer, the difference between the par value and the fair value of these securities resulted in a premium or discount that, under amortized cost accounting, will be amortized as a yield adjustment to interest income using the interest method. The unrealized holding gains or losses at the date of transfer will continue to be reported as a separate component of shareholders’ equity in accumulated other comprehensive income/(loss), and will also be amortized over the remaining life of the securities as a yield adjustment to interest income using the interest method. There were no gains or losses recognized as a result of this transfer.

The table below summarizes the amortized cost and fair values of debt securities, by contractual maturity (in thousands). Expected maturities may differ significantly from contractual maturities, as issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

	September 30, 2011
	Available-for-sale				Held-to-maturity
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Debt securities
Within one year	$	30,183	$	30,579	$	—	$	—
After one year through three years		233,280		232,661		—		—
After three years through five years		153,110		150,672		15,118		14,301
After five years through ten years		10,529