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 March 31, 2012


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 April 30, 2012, 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 22,830 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	2
Item 1. Financial Statements	2
Consolidated Statements of Financial Condition as of March 31, 2012 (unaudited) and December 31, 2011	2
Consolidated Statements of Operations for the three months ended March 31, 2012 and March 31, 2011 (unaudited)	4
Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and March 31, 2011 (unaudited)	5
Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and March 31, 2011 (unaudited)	6
Notes to Consolidated Financial Statements (unaudited)	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3. Quantitative and Qualitative Disclosures About Market Risk	65
Item 4. Controls and Procedures	69

PART II - OTHER INFORMATION	70
Item 1. Legal Proceedings	70
Item 1A. Risk Factors	72
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 6. Exhibits	73
Signatures	74

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition


(in thousands)	March 31, 2012		December 31, 2011
	(Unaudited)
Assets
Cash and cash equivalents	$	226,458	$	167,671
Restricted cash		6,584		6,883
Cash segregated for regulatory purposes		26		26
Receivables:
Brokerage clients, net		569,276		560,018
Brokers, dealers, and clearing organizations		237,258		252,636
Securities purchased under agreements to resell		103,958		75,455
Trading securities owned, at fair value (includes securities pledged of $425,845 and $392,395, respectively)		575,724		474,951
Available-for-sale securities, at fair value		1,347,535		1,214,141
Held-to-maturity securities, at amortized cost		327,447		190,484
Loans held for sale		141,136		131,754
Bank loans, net of allowance		657,193		632,140
Other real estate owned		717		708
Investments		244,106		239,208
Fixed assets, net		101,401		104,740
Goodwill		358,988		358,988
Intangible assets, net		32,534		33,863
Loans and advances to financial advisors and other employees, net		183,652		172,717
Deferred tax assets, net		141,798		177,803
Other assets		209,903		157,714
Total Assets	$	5,465,694	$	4,951,900

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Financial Condition (continued)


(in thousands, except share and per share amounts)	March 31, 2012			December 31, 2011
	(Unaudited)
Liabilities and Shareholders' Equity
Short-term borrowings from banks	$	187,400		$	199,400
Payables:
Brokerage clients		291,317			245,886
Brokers, dealers, and clearing organizations		169,437			139,911
Drafts		56,627			75,901
Securities sold under agreements to repurchase		142,119			80,176
Bank deposits		2,357,912			2,071,738
Trading securities sold, but not yet purchased, at fair value		267,807			266,833
Securities sold, but not yet purchased, at fair value		21,823			19,223
Accrued compensation		124,962			204,076
Accounts payable and accrued expenses		240,530			257,194
Senior notes		175,000			-
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
		4,117,434			3,642,838
Liabilities subordinated to claims of general creditors		5,318			6,957
Shareholders' Equity:
Preferred stock - $1 par value; authorized 3,000,000 shares; none issued		-			-
Exchangeable common stock - $0.15 par value; issued 34,593 and 172,242 shares, respectively		5			26
Common stock - $0.15 par value; authorized 97,000,000 shares; issued 53,685,423 and 53,547,774 shares, respectively		8,053			8,032
Additional paid-in-capital		1,051,863			1,078,743
Retained earnings		286,854			277,195
Accumulated other comprehensive loss		(189	)		(7,938	)
		1,346,586			1,356,058
Treasury stock, at cost, 92,359 and 1,769,096 shares, respectively		(3,383	)		(53,640	)
Unearned employee stock ownership plan shares, at cost, 61,013 and 73,215 shares, respectively		(261	)		(313	)
		1,342,942			1,302,105
Total Liabilities and Shareholders' Equity	$	5,465,694		$	4,951,900

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Operations

(Unaudited)


	Three Months Ended March 31,
(in thousands, except per share amounts)	2012		2011
Revenues:
Commissions	$	123,303	$	155,786
Principal transactions		116,233		92,859
Investment banking		70,438		41,418
Asset management and service fees		60,818		57,680
Interest		25,257		18,856
Other income		13,294		6,256
Total revenues		409,343		372,855
Interest expense		9,010		6,242
Net revenues		400,333		366,613

Non-interest expenses:
Compensation and benefits		254,704		231,166
Occupancy and equipment rental		30,791		29,325
Communications and office supplies		20,373		18,845
Commissions and floor brokerage		7,612		6,649
Other operating expenses		27,599		29,944
Total non-interest expenses		341,079		315,929

Income before income tax expense		59,254		50,684
Provision for income taxes		24,481		19,286
Net income	$	34,773	$	31,398

Earnings per common share:
Basic	$	0.65	$	0.60
Diluted	$	0.55	$	0.50

Weighted average number of common shares outstanding:
Basic		53,243		52,534
Diluted		62,669		63,179

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2012		2011

Net income	$	34,773	$	31,398
Other comprehensive income:
Unrealized gains on available-for-sale securities, net of tax		4,850		1,193
Unrealized gains on cash flow hedging instruments, net of tax		2,364		2,806
Foreign currency translation adjustment, net of tax		535		534
		7,749		4,533
Comprehensive income	$	42,522	$	35,931

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows

(Unaudited)


	Three Months Ended March 31,
(in thousands)	2012			2011
Cash Flows from Operating Activities:
Net income	$	34,773		$	31,398
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		7,189			5,606
Amortization of loans and advances to financial advisors and other employees		13,931			14,268
Amortization of premium on available-for-sale securities		2,886			3,602
Provision for loan losses and allowance for loans and advances to financial advisors and other employees		955			(259	)
Amortization of intangible assets		1,329			1,064
Deferred income taxes		31,514			23,351
Excess tax benefits from stock-based compensation		(12,438	)		(22,463	)
Stock-based compensation		6,963			6,780
Gains on investments		(7,952	)		(3,317	)
Other, net		(308	)		633
Decrease/(increase) in operating assets:
Cash segregated for regulatory purposes and restricted cash		299			996
Receivables:
Brokerage clients		(9,270	)		(6,756	)
Brokers, dealers, and clearing organizations		15,378			(77,388	)
Securities purchased under agreements to resell		(28,503	)		(90,616	)
Loans originated as held for sale		(356,192	)		(179,834	)
Proceeds from mortgages held for sale		346,809			234,725
Trading securities owned, including those pledged		(100,773	)		(117,240	)
Loans and advances to financial advisors and other employees		(25,203	)		(14,029	)
Other assets		(35,119	)		(11,265	)
Increase/(decrease) in operating liabilities:
Payables:
Brokerage clients		45,431			(6,636	)
Brokers, dealers, and clearing organizations		13,590			(42,560	)
Drafts		(19,274	)		(17,962	)
Trading securities sold, but not yet purchased		3,574			167,269
Other liabilities and accrued expenses		(119,349	)		(151,611	)
Net cash used in operating activities	$	(189,760	)	$	(252,244	)

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Consolidated Statements of Cash Flows (continued)


	Three Months Ended March 31,
(in thousands)	2012			2011
Cash Flows from Investing Activities:
Proceeds from:
Maturities, calls, sales, and principal paydowns on available-for-sale securities	$	63,783		$	71,512
Calls of held-to-maturity securities		-			500
Sale or maturity of investments		15,534			16,609
Sale of other real estate owned		75			228
Increase in bank loans, net		(25,534	)		(7,604	)
Payments for:
Purchase of available-for-sale securities		(192,536	)		(251,409	)
Purchase of held-to-maturity securities		(136,854	)		(11,264	)
Purchase of investments		(12,480	)		(12,369	)
Purchase of fixed assets		(3,902	)		(18,118	)
Net cash used in investing activities		(291,914	)		(211,915	)
Cash Flows from Financing Activities:
(Payments of)/proceeds from short-term borrowings from banks		(12,000	)		190,100
Proceeds from issuance of senior notes, net		170,291			-
Increase in securities sold under agreements to repurchase		61,943			33,911
Increase in bank deposits, net		286,174			2,322
Increase in securities loaned		15,936			85,361
Excess tax benefits from stock-based compensation		12,438			22,463
Reissuance of treasury stock		6,783			2,093
Extinguishment of subordinated debt		(1,639	)		(1,284	)
Net cash provided by financing activities		539,926			334,966

Effect of exchange rate changes on cash		535			534

Increase/(decrease) in cash and cash equivalents		58,787			(128,659	)
Cash and cash equivalents at beginning of period		167,671			253,529
Cash and cash equivalents at end of period	$	226,458		$	124,870

Supplemental disclosure of cash flow information:
(Refunds, net of taxes paid)/Cash paid for income taxes, net of refunds	$	(885	)	$	4,323
Cash paid for interest		6,712			5,982
Noncash investing and financing activities:
Units, net of forfeitures		68,159			84,193

See accompanying Notes to Consolidated Financial Statements.

STIFEL FINANCIAL CORP.

Notes to Consolidated Financial Statements

(Unaudited)

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 Europe Limited ("SNEL"), Century Securities Associates, Inc. ("CSA"), Stifel Nicolaus Canada, Inc. ("SN Canada"), and Thomas Weisel Partners LLC ("TWP"), 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 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.

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, 2011 on file with the SEC.

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, 2011.

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, we evaluate 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 receives benefits or will absorb losses that are not pro rata with its ownership interests.

We determine whether we are the primary beneficiary of a VIE by first performing a qualitative analysis of the VIE's control structure, expected benefits and 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 benefits or losses, variability, related party relationships, and the design of the VIE. Where a 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 23 for additional information on variable interest entities.

NOTE 2 - Recently Adopted Accounting Guidance

Goodwill Impairment Testing

In September 2011, the Financial Accounting Standards Board ("FASB") issued Update No. 2011-08 "Testing Goodwill for Impairment," which amends Topic 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. The adoption of the new guidance did not have a material impact on our consolidated financial statements.

Comprehensive Income

In June 2011, the FASB issued Update No. 2011-05, "Comprehensive Income (Topic 220): Presentation of Comprehensive Income" ("Update No. 2011-05"), 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 impacted where we disclose the components of other comprehensive income in our consolidated financial statements, it did not have an impact on our consolidated financial statements.

In December 2011, the FASB issued Update No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05" ("Update No. 2011-12"), which deferred the requirement to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income while the FASB further deliberates this aspect of the proposal. The amendments contained in Update No. 2011-05 do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. Update No. 2011-05, as amended by Update No. 2011-12, became effective for us on January 1, 2012. Although the adoption of this new guidance did not have a material impact on our accounting for comprehensive income, it did impact our presentation of the components of comprehensive income by eliminating the historical practice of showing these items within our 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" (Update No. 2011-04), 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). Other than requiring additional disclosures regarding fair value measurements, the adoption of this new guidance did not have an impact on our consolidated financial statements. See Note 4 - Fair Value Measurements.

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). The adoption of this new guidance did not have a material impact on our consolidated financial statements.

Recently Issued Accounting Guidance

Disclosures about Offsetting Assets and Liabilities

In December 2011, the FASB issued Update No. 2011-11, "Disclosures about Offsetting Assets and Liabilities," which enhance disclosures by requiring improved information about financial and derivative instruments that are either 1) offset (netting assets and liabilities) in accordance with Topic 210 "Balance Sheet," and Topic 815, "Derivatives and Hedging or 2) subject to an enforceable master netting arrangement or similar agreement. This guidance is effective for interim and annual reporting periods beginning on or after January 1, 2013 (January 1, 2013 for our company), and requires retrospective disclosures for comparative periods presented. We are currently evaluating the impact the new guidance will have on our consolidated financial statements.

NOTE 3 - Receivables From and Payables to Brokers, Dealers and Clearing Organizations

Amounts receivable from brokers, dealers, and clearing organizations at March 31, 2012 and December 31, 2011, included (in thousands):


	March 31, 2012		December 31, 2011

Deposits paid for securities borrowed	$	200,734	$	193,509
Securities failed to deliver		22,336		15,485
Receivable from clearing organizations		14,188		43,642
	$	237,258	$	252,636

Amounts payable to brokers, dealers, and clearing organizations at March 31, 2012 and December 31, 2011, included (in thousands):


	March 31, 2012		December 31, 2011

Deposits received from securities loaned	$	141,101	$	124,711
Securities failed to receive		24,791		11,216
Payable to clearing organizations		3,545		3,984
	$	169,437	$	139,911

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 4 - Fair Value Measurements

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, 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.

We generally utilize third-party pricing services to value Level 1 and Level 2 available-for-sale investment securities, as well as certain derivatives designated as fair value hedges. We review the methodologies and assumptions used by the third-party pricing services and evaluate the values provided, principally by comparison with other available market quotes for similar instruments and/or analysis based on internal models using available third-party market data. We may occasionally adjust certain values provided by the third-party pricing service when we believe, as the result of our review, that the adjusted price most appropriately reflects the fair value of the particular security.

Following are descriptions of the valuation methodologies and key inputs used to measure financial assets and liabilities recorded at fair value. The descriptions include an indication of the level of the fair value hierarchy in which the assets or liabilities are classified.

Cash and Cash Equivalents

Cash equivalents include highly liquid investments with original maturities of three months or less. Due to their short-term nature, the carrying amount of these instruments approximates the estimated fair value. Actively traded money market funds are measured at their net asset value, which approximates fair value. As such, we classify the estimated fair value of these instruments 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.

Securities classified as Level 3, of which the substantial majority is auction rate securities ("ARS"), represent securities in less liquid markets requiring significant management assumptions when determining fair value. Due to the lack of a robust secondary auction-rate securities market with active fair value indicators, fair value for all periods presented was determined using an income approach based on an internally developed discounted cash flow model. The discounted cash flow model utilizes two significant unobservable inputs: discount rate and workout period. The discount rate was calculated using credit spreads of the underlying collateral or similar securities. The workout period was based on an assessment of publicly available information on efforts to re-establish functioning markets for these securities and our company's own redemption experience. Significant increases in any of these inputs in isolation would result in a significantly lower fair value. On an on-going basis, management verifies the fair value by reviewing the appropriateness of the discounted cash flow model and its significant inputs.

In addition to ARS, we have classified certain corporate obligations with unobservable pricing inputs and airplane trust certificates as Level 3. The methods used to value trading securities are the same as the methods used to value ARS, discussed above.

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. The methods used to value ARS are discussed above.

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 value of these investments is at risk to changes in equity markets, general economic conditions and a variety of other factors. We estimate fair value for private equity investments based on our percentage ownership in the net asset value of the entire fund, as reported by the fund or on behalf of the fund, after indication that the fund adheres to applicable fair value measurement guidance. For those funds where the net asset value is not reported by the fund, we derive the fair value of the fund by estimating the fair value of each underlying investment in the fund. In addition to using qualitative information about each underlying investment, as provided by the fund, we give consideration to information pertinent to the specific nature of the debt or equity investment, such as relevant market conditions, offering prices, operating results, financial conditions, exit strategy and other qualitative information, as available. The lack of an independent source to validate fair value estimates, including the impact of future capital calls and transfer restrictions, is an inherent limitation in the valuation process. Commitments to fund additional investments in nonmarketable equity securities recorded at fair value were $3.7 million and $4.0 million at March 31, 2012 and December 31, 2011, respectively.

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.

Securities Sold, But Not Yet Purchased

Equity securities that are valued based on quoted prices in active markets and reported in Level 1.

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. We manage credit risk for our derivative positions on a counterparty-by-counterparty basis and calculate credit valuation adjustments, included in the fair value of these instruments, on the basis of our relationships at the counterparty portfolio/master netting agreement level. These credit valuation adjustments are determined by applying a credit spread for the counterparty to the total expected exposure of the derivative after considering collateral and other master netting arrangements. We have classified our interest rate swaps as Level 2.

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011 are presented below:

	March 31, 2012
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	48,751	$	48,751	$	-	$	-
Trading securities owned:
U.S. government agency securities		91,271		-		91,271		-
U.S. government securities		15,030		15,030		-		-
Corporate securities:
Fixed income securities		240,244		67,774		165,773		6,697
Equity securities		31,810		28,584		3,226		-
State and municipal securities		197,369		-		197,369		-
Total trading securities owned		575,724		111,388		457,639		6,697
Available-for-sale securities:
U.S. government agency securities		1,116		-		1,116		-
State and municipal securities		83,466		-		18,607		64,859
Mortgage-backed securities:
Agency		465,882		-		465,882		-
Commercial		286,868		-		286,868		-
Non-agency		16,689		-		16,689		-
Corporate fixed income securities		468,097		310,850		145,247		12,000
Asset-backed securities		25,417		-		25,417		-
Total available-for-sale securities		1,347,535		310,850		959,826		76,859
Investments:
Corporate equity securities		27,504		27,311		193		-
Mutual funds		36,855		36,855		-		-
U.S. government securities		7,000		7,000		-		-
Auction rate securities:
Equity securities		92,077		-		-		92,077
Municipal securities		13,404		-		-		13,404
Other		39,266		942		342		37,982
Total investments		216,106		72,108		535		143,463
	$	2,188,116	$	543,097	$	1,418,000	$	227,019

Liabilities:
Trading securities sold, but not yet purchased:
U.S. government securities	$	98,283	$	98,283	$	-	$	-
U.S. government agency securities		6,161		-		6,161		-
Corporate securities:
Fixed income securities		145,002		46,729		98,273		-
Equity securities		17,972		17,972		-		-
State and municipal securities		389		-		389		-
Total trading securities sold, but not yet purchased		267,807		162,984		104,823		-
Securities sold, but not yet purchased		21,823		21,823		-		-
Derivative contracts (1)		21,040		-		21,040		-
	$	310,670	$	184,807	$	125,863	$	-

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


	December 31, 2011
	Total		Level 1		Level 2		Level 3
Assets:
Cash equivalents	$	14,156	$	14,156	$	-	$	-
Trading securities owned:
U.S. government agency securities		66,424		-		66,424		-
U.S. government securities		32,845		32,845		-		-
Corporate securities:
Fixed income securities		244,535		31,398		209,395		3,742
Equity securities		19,859		19,506		353		-
State and municipal securities		111,288		-		111,288		-
Total trading securities owned		474,951		83,749		387,460		3,742
Available-for-sale securities:
U.S. government agency securities		1,103		-		1,103		-
State and municipal securities		86,932		-		20,036		66,896
Mortgage-backed securities:
Agency		404,662		-		404,662		-
Commercial		271,510		-		271,510		-
Non-agency		17,460		-		17,460		-
Corporate fixed income securities		405,985		153,855		240,130		12,000
Asset-backed securities		26,489		-		26,489		-
Total available-for-sale securities		1,214,141		153,855		981,390		78,896
Investments:
Corporate equity securities		23,921		23,921		-		-
Mutual funds		33,958		33,958		-		-
Auction rate securities:
Equity securities		103,176		-		-		103,176
Municipal securities		11,729		-		-		11,729
Other		38,424		1,055		336		37,033
Total investments		211,208		58,934		336		151,938
	$	1,914,456	$	310,694	$	1,369,186	$	234,576

Liabilities:
Trading securities sold, but not yet purchased:
U.S. government securities	$	109,776	$	109,776	$	-	$	-
U.S. government agency securities		954		-		954		-
Corporate securities:
Fixed income securities		149,460		74,719		74,741		-
Equity securities		6,060		6,019		41		-
State and municipal securities		583		-		583		-
Total trading securities sold, but not yet purchased		266,833		190,514		76,319		-
Securities sold, but not yet purchased		19,223		19,223		-		-
Derivative contracts (1)		24,877		-		24,877		-
	$	310,933	$	209,737	$	101,196	$	-

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

Our 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 March 31, 2012 and December 31, 2011.

The following table summarizes the changes in fair value carrying values associated with Level 3 financial instruments during the three months ended March 31, 2012 (in thousands):


				Available-for-sale securities					Investments
	Corporate Fixed Income Securities (1)			State and Municipal Securities (2)			Corporate Fixed Income Securities		Auction Rate Securities - Equity			Auction Rate Securities - Municipal			Other

Balance at December 31, 2011	$	3,742		$	66,896		$	12,000	$	103,176		$	11,729		$	37,033
Unrealized gains/(losses):
Included in changes in net assets (3)		47			-			-		451			(65	)		704
Included in OCI (4)		-			(155	)		-		-			-			-
Realized gains (3)		18			118			-		-			-			590
Purchases		5,246			-			-		2,800			2,040			390
Sales		(2,557	)		-			-		-			-			(735	)
Redemptions		-			(2,000	)		-		(14,350	)		(300	)		-
Transfers:
Into Level 3		227			-			-		-			-			-
Out of Level 3		(26	)		-			-		-			-			-
Net change		2,955			(2,037	)		-		(11,099	)		1,675			949
Balance at March 31, 2012	$	6,697		$	64,859		$	12,000	$	92,077		$	13,404		$	37,982

(1) Included in trading securities owned in the consolidated statements of financial condition.
(2) Consists of auction rate securities.
(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 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: unrealized gains and losses, and redemptions of ARS at par during the three months ended March 31, 2012. The changes in unrealized gains/(losses) recorded in earnings for the three months ended March 31, 2012 relating to Level 3 assets still held at March 31, 2012 were immaterial.

The following table presents quantitative information related to the significant unobservable inputs utilized in our company's Level 3 recurring fair value measurements as of March 31, 2012 (in thousands, except rates and years).


			Discounted cash flow model - unobservable inputs
			Discount rate		Workout period
	Estimated fair value		Range	Weighted average	Range	Weighted average

Available-for-sale securities:
State and municipal securities	$	64,859	2.4% - 9.2%	5.0%	3 - 4 years	3.5 years
Investments:
Auction rate securities:
Equity securities		92,077	0.0% - 7.5%	4.7%	1 - 4 years	2.6 years
Municipal securities		13,404	1.5% - 8.7%	4.2%	1 - 3 years	1.9 years

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. 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 $1.8 million of transfers of financial assets from Level 2 to Level 1 during the three months ended March 31, 2012 primarily related to tax-exempt securities for which market trades were observed that provided transparency into the valuation of these assets. There were $0.4 million of transfers of financial assets from Level 1 to Level 2 during the three months ended March 31, 2012 primarily related to tax-exempt securities for which there were low volumes of recent trade activity observed. There were $0.2 million of transfers of financial assets into Level 3 during the three months ended March 31, 2012 related to corporate fixed income 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 March 31, 2012 and December 31, 2011, whether or not recognized in the consolidated statements of financial condition at fair value (in thousands).


	March 31, 2012				December 31, 2011
	Carrying value		Estimated fair value		Carrying value		Estimated fair value
Financial assets:
Cash and cash equivalents	$	226,458	$	226,458	$	167,671	$	167,671
Restricted cash		6,584		6,584		6,883		6,883
Cash segregated for regulatory purposes		26		26		26		26
Securities purchased under agreements to resell		103,958		103,958		75,455		75,455
Trading securities owned		575,724		575,724		474,951		474,951
Available-for-sale securities		1,347,535		1,347,535		1,214,141		1,214,141
Held-to-maturity securities		327,447		329,833		190,484		189,071
Loans held for sale		141,136		141,136		131,754		131,754
Bank loans		657,193		665,773		632,140		639,341
Investments		244,106		244,106		239,208		239,208
Financial liabilities:
Securities sold under agreements to repurchase	$	142,119	$	142,119	$	80,176	$	80,176
Bank deposits		2,357,912		2,326,411		2,071,738		2,067,324
Trading securities sold, but not yet purchased		267,807		267,807		266,833		266,833
Securities sold, but not yet purchased		21,823		21,823		19,223		19,223
Derivative contracts (1)		21,040		21,040		24,877		24,877
Senior notes		175,000		189,108		-		-
Debentures to Stifel Financial Capital Trusts		82,500		69,206		82,500		67,594
Liabilities subordinated to the claims of general creditors		5,318		5,079		6,957		6,671

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

The following table presents the estimated fair values of financial instruments not measured at fair value on a recurring basis (in thousands):


	March 31, 2012 (1)
	Total		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	177,707	$	177,707	$	-	$	-
Restricted cash		6,584		6,584		-		-
Cash segregated for regulatory purposes		26		26		-		-
Securities purchased under agreements to resell		103,958		103,958		-		-
Held-to-maturity securities		329,833		14,707		39,537		275,589
Loans held for sale		141,136		-		141,136		-
Bank loans		665,773		-		665,773		-
Investments		28,000		-		-		28,000
Financial liabilities:
Securities sold under agreements to repurchase	$	142,119		35,809		106,310		-
Bank deposits		2,326,411		-		2,326,411		-
Senior notes		189,108		189,108		-		-
Debentures to Stifel Financial Capital Trusts		69,206		-		-		69,206
Liabilities subordinated to claims of general creditors		5,079		-		-		5,079

(1) We adopted the provisions of Update No. 2011-04 in the first quarter of 2012 on a prospective basis. Accordingly, disclosures for prior periods are not presented.

The following, as supplemented by the discussion above, describes the valuation techniques used in estimating the fair value of our financial instruments as of March 31, 2012 and December 31, 2011.

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 March 31, 2012 and December 31, 2011 approximate fair value due to the short-term nature.

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.

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.

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 March 31, 2012 and December 31, 2011 approximate fair value due to the short-term nature.

Bank Deposits

The fair value for demand deposits is equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate money-market and savings accounts approximate their fair values at the reporting date as these are short-term in nature. 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.

Senior Notes

The fair value of our 6.70% senior notes is estimated based upon quoted market prices.

Debentures to Stifel Financial Capital Trusts

The fair value of our trust preferred securities is based on the discounted value of contractual cash flows. We have assumed a discount rate based on the coupon achieved in our recently issued 6.7% senior notes due 2022.

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 5 - 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 March 31, 2012 and December 31, 2011, are as follows (in thousands):


	March 31, 2012		December 31, 2011
Trading securities owned:
U.S. government agency securities	$	91,271	$	66,424
U.S. government securities		15,030		32,845
Corporate securities:
Fixed income securities		240,244		244,535
Equity securities		31,810		19,859
State and municipal securities		197,369		111,288
	$	575,724	$	474,951
Trading securities sold, but not yet purchased:
U.S. government securities	$	98,283	$	109,776
U.S. government agency securities		6,161		954
Corporate securities:
Fixed income securities		145,002		149,460
Equity securities		17,972		6,060
State and municipal securities		389		583
	$	267,807	$	266,833

At March 31, 2012 and December 31, 2011, trading securities owned in the amount of $425.8 million and $392.4 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 in future periods. We are obligated to acquire the securities sold short at prevailing market prices in future periods, which may exceed the amount reflected in the consolidated statements of financial condition.

NOTE 6 - 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 March 31, 2012 and December 31, 2011 (in thousands):

	March 31, 2012
	Amortized cost		Gross unrealized gains (1)		Gross unrealized losses (1)			Estimated fair value
Available-for-sale securities
U.S. government securities	$	1,115	$	2	$	(1	)	$	1,116
State and municipal securities		79,351		4,540		(425	)		83,466
Mortgage-backed securities:
Agency		457,608		8,687		(413	)		465,882
Commercial		283,746		3,664		(542	)		286,868
Non-agency		16,458		231		-			16,689
Corporate fixed income securities		466,221		4,647		(2,771	)		468,097
Asset-backed securities		25,252		498		(333	)		25,417
	$	1,329,751	$	22,269	$	(4,485	)	$	1,347,535
Held-to-maturity securities (2)
Asset-backed securities	$	251,832	$	6,221	$	(2,681	)	$	255,372
Corporate fixed income securities		55,519		56		(1,331	)		54,244
Municipal auction rate securities		20,096		846		(725	)		20,217
	$	327,447	$	7,123	$	(4,737	)	$	329,833

	December 31, 2011
	Amortized cost		Gross unrealized gains (1)		Gross unrealized losses (1)			Estimated fair value
Available-for-sale securities
U.S. government securities	$	1,105	$	-	$	(2	)	$	1,103
State and municipal securities		82,256		4,979		(303	)		86,932
Mortgage-backed securities:
Agency		396,952		8,469		(759	)		404,662
Commercial		270,677		1,811		(978	)		271,510
Non-agency		17,701		135		(376	)		17,460
Corporate fixed income securities		409,503		2,108		(5,626	)		405,985
Asset-backed securities		26,011		548		(70	)		26,489
	$	1,204,205	$	18,050	$	(8,114	)	$	1,214,141
Held-to-maturity securities (2)
Asset-backed securities	$	122,148	$	2,953	$	(3,138	)	$	121,963
Corporate fixed income securities		55,544		56		(2,016	)		53,584
Municipal auction rate securities		12,792		733		(1	)		13,524
	$	190,484	$	3,742	$	(5,155	)	$	189,071

(1) Unrealized gains/(losses) related to available-for-sale securities are reported in accumulated other comprehensive 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 months ended March 31, 2012, we received proceeds of $2.7 million from the sale of available-for-sale securities, which resulted in realized gains of an immaterial amount. During the three months ended March 31, 2012 and 2011, unrealized gains, net of deferred taxes, of $4.9 million and $1.2 million, respectively, were recorded in accumulated other comprehensive loss in the consolidated statements of financial condition.

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.


	March 31, 2012
	Available-for-sale securities				Held-to-maturity securities
	Amortized cost		Estimated fair value		Amortized cost		Estimated fair value
Debt securities
Within one year	$	36,257	$	36,424	$	-	$	-
After one year through three years		318,885		322,515		-		-
After three years through five years		118,776		116,776		21,265		20,909
After five years through ten years		5,583		6,207		143,413		142,717
After ten years		92,438		96,174		162,769		166,207
Mortgage-backed securities
After one year through three years		9,528		10,003		-		-
After five years through ten years		17,408		17,815		-		-
After ten years		730,876		741,621		-		-
	$	1,329,751	$	1,347,535	$	327,447	$	329,833

The carrying value of securities pledged as collateral to secure public deposits and other purposes was $706.3 million and $634.8 million at March 31, 2012 and December 31, 2011, respectively.

The following table is a summary of the amount of gross unrealized losses and the estimated fair value by length of time that the available-for-sale securities have been in an unrealized loss position at March 31, 2012 (in thousands):


	Less than 12 months					12 months or more					Total
	Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value		Gross unrealized losses			Estimated fair value
Available-for-sale securities
U.S. government securities	$	(1	)	$	109	$	-		$	-	$	(1	)	$	109
State and municipal securities		(425	)		26,129		-			-		(425	)		26,129
Mortgage-backed securities:
Agency		(413	)		163,201		-			-		(413	)		163,201
Commercial		(542	)		46,227		-			-		(542	)		46,227
Corporate fixed income securities		(1,301	)		57,026		(1,470	)		28,512		(2,771	)		85,538
Asset-backed securities		(333	)		15,196		-			-		(333	)		15,196
	$	(3,015	)	$	307,888	$	(1,470	)	$	28,512	$	(4,485	)	$	336,400

The gross unrealized losses on our available-for-sale securities of $4.5 million as of March 31, 2012 relate to 37 individual securities.

Certain investments in the available-for-sale portfolio at March 31, 2012, are reported in the consolidated statements of financial condition at an amount less than their amortized cost. The total fair value of these investments at March 31, 2012, was $336.4 million, which was 25.0% of our available-for-sale investment portfolio. The amortized cost basis of these investments was $331.9 million at March 31, 2012. As discussed in more detail below, we conduct periodic reviews of all securities with unrealized losses to assess whether the impairment is other-than-temporary.

Other-Than-Temporary Impairment

We evaluate all securities in an unrealized loss position quarterly to assess whether the impairment is other-than-temporary. Our other-than-temporary impairment ("OTTI") assessment is a subjective process requiring the use of judgments and assumptions. Accordingly, we consider a number of qualitative and quantitative criteria in our assessment, including the extent and duration of the impairment; recent events specific to the issuer and/or industry to which the issuer belongs; the payment structure of the security; external credit ratings and the failure of the issuer to make scheduled interest or principal payments; the value of underlying collateral; and current market conditions.

If we determine that impairment on our debt securities is other-than-temporary and we have made the decision to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, we recognize the entire portion of the impairment in earnings. If we have not made a decision to sell the security and we do not expect that we will be required to sell the security prior to recovery of the amortized cost basis, we recognize only the credit component of OTTI in earnings. The remaining unrealized loss due to factors other than credit, or the non-credit component, is recorded in accumulated other comprehensive loss. We determine the credit component based on the difference between the security's amortized cost basis and the present value of its expected future cash flows, discounted based on the purchase yield. The non-credit component represents the difference between the security's fair value and the present value of expected future cash flows. Based on the evaluation, we recognized a credit-related OTTI of $0.2 million in earnings for the three months ended March 31, 2012.

We estimate the portion of loss attributable to credit using a discounted cash flow model. Key assumptions used in estimating the expected cash flows include default rates, loss severity and prepayment rates. Assumptions used can vary widely based on the collateral underlying the securities and are influenced by factors such as collateral type, loan interest rate, geographical location of the borrower, and borrower characteristics.

We believe the gross unrealized losses related to all other securities of $4.5 million as of March 31, 2012 are attributable to issuer specific credit spreads and changes in market interest rates and asset spreads. We, therefore, do not expect to incur any credit losses related to these securities. In addition, we have no intent to sell these securities with unrealized losses and it is not more likely than not that we will be required to sell these securities prior to recovery of the amortized cost. Accordingly, we have concluded that the impairment on these securities is not other-than-temporary.

NOTE 7 - Bank Loans

The following table presents the balance and associated percentage of each major loan category in our loan portfolio at March 31, 2012 and December 31, 2011 (in thousands, except percentages):

	March 31, 2012					December 31, 2011
	Balance			Percent		Balance		Percent

Consumer (1)	$	385,231		58.1	%	$	371,399	58.2	%
Commercial and industrial		203,559		30.7			186,996	29.3
Residential real estate		47,200		7.1			51,755	8.1
Home equity lines of credit		24,100		3.6			24,086	3.8
Commercial real estate		2,996		0.4			3,107	0.5
Construction and land		514		0.1			514	0.1
		663,600		100.0	%		637,857	100.0	%
Unamortized loan fees, net of origination costs		(537	)