##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 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 Number: 001-33138
 KBW, INC.
  Delaware
    
    13-4055775(State or Other Jurisdiction of Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)
 787 Seventh Avenue, New York, New York 10019   Registrants telephone number: (212) 887-7777
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




---



##### 



TABLE OF CONTENTS
 PageNumberAVAILABLE INFORMATION
    
    
    1PART I. FINANCIAL INFORMATION
    
    
    2ITEM 1. Financial Statements
    
    
    2Consolidated Statements of Financial Condition-March 31, 2009 (Unaudited) and December 31, 2008
    
    
    2Consolidated Statements of Operations-Three Months ended March 31, 2009 and 2008 (Unaudited)
    
    
    3Consolidated Statement of Changes in Stockholders Equity-Three Months ended March 31, 2009 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows-Three Months ended March 31, 2009 and 2008 (Unaudited)
    
    
    5Notes to Consolidated Financial Statements
    
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    28ITEM 4. Controls and Procedures
    
    
    30PART II. OTHER INFORMATION
    
    
    31ITEM 1. Legal Proceedings
    
    
    31ITEM 1A. Risk Factors
    
    
    31ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31ITEM 3. Defaults Upon Senior Securities
    
    
    31ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    31ITEM 5. Other Information
    
    
    31ITEM 6. Exhibits
    
    
    31SIGNATURES
    
    
    32EXHIBIT INDEX
    
    
    33EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



AVAILABLE INFORMATION
   th
 1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements
 KBW, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Financial Condition
 (Dollars in thousands)
 March 31,2009
    
    
    December 31,(unaudited)
    
    
    2008ASSETSCash and cash equivalents
    
    $
    146,125
    
    
    $
    194,981Financial instruments owned, at fair value:Equities
    
    
    34,931
    
    
    
    41,765Corporate and other debt
    
    
    47,875
    
    
    
    53,879Other investments
    
    
    36,252
    
    
    
    34,893119,058
    
    
    
    130,537Securities purchased under resale agreements
    
    
    8,058
    
    
    
    Receivables from clearing brokers
    
    
    126,338
    
    
    
    130,682Accounts receivable
    
    
    19,508
    
    
    
    19,391Income taxes receivable
    
    
    31,054
    
    
    
    33,270Furniture, equipment and leasehold improvements,
at cost, less accumulated depreciation and amortization
of $22,719 in 2009 and $21,546 in 2008
    
    
    18,719
    
    
    
    18,895Other assets
    
    
    44,612
    
    
    
    43,710Total assets
    
    $
    513,472
    
    
    $
    571,466LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Securities sold under repurchase agreements
    
    $
    8,613
    
    
    $
    Short-term borrowings
    
    
    31,547
    
    
    
    31,547Financial instruments sold, not yet purchased, at fair
value:Equities
    
    
    21,436
    
    
    
    11,162U.S. Government and agency securities
    
    
    7,957
    
    
    
    29,393
    
    
    
    11,162Accounts payable, accrued expenses, and other liabilities
    
    
    29,237
    
    
    
    122,070Income taxes payable
    
    
    10,103
    
    
    
    9,956Total liabilities
    
    
    108,893
    
    
    
    174,735Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    302
    
    
    
    298Paid-in capital
    
    
    143,895
    
    
    
    137,618Retained earnings
    
    
    275,749
    
    
    
    275,019Notes receivable from stockholders
    
    
    (709
    )
    
    
    (2,225
    )Accumulated other comprehensive loss
    
    
    (14,658
    )
    
    
    (13,979
    )Total stockholders equity
    
    
    404,579
    
    
    
    396,731Total liabilities and stockholders equity
    
    $
    513,472
    
    
    $
    571,466
  2




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 (Dollars in thousands, except per share information)
 (unaudited)
 Three Months EndedMarch 31,2009
    
    
    2008Revenues:Investment banking
    
    $
    26,860
    
    
    $
    43,087Commissions
    
    
    36,019
    
    
    
    52,766Principal transactions, net
    
    
    4,116
    
    
    
    (30,100
    )Interest and dividend income
    
    
    1,738
    
    
    
    8,092Investment advisory fees
    
    
    313
    
    
    
    306Other
    
    
    3,230
    
    
    
    701Total revenues
    
    
    72,276
    
    
    
    74,852Expenses:Compensation and benefits
    
    
    45,667
    
    
    
    59,933Occupancy and equipment
    
    
    5,159
    
    
    
    4,743Communications and data processing
    
    
    6,660
    
    
    
    6,423Brokerage and clearance
    
    
    3,882
    
    
    
    7,153Business development
    
    
    3,032
    
    
    
    3,789Interest
    
    
    169
    
    
    
    2,068Other
    
    
    5,777
    
    
    
    4,180Total expenses
    
    
    70,346
    
    
    
    88,289Income / (loss) before income taxes
    
    
    1,930
    
    
    
    (13,437
    )Income tax expense / (benefit)
    
    
    1,200
    
    
    
    (5,938
    )Net income / (loss)
    
    $
    730
    
    
    $
    (7,499
    )Earnings per common share:Basic
    
    $
    0.02
    
    
    $
    (0.24
    )Diluted
    
    $
    0.02
    
    
    $
    (0.24
    )Weighted average number
of common shares outstanding:Basic
    
    
    31,354,507
    
    
    
    30,735,039Diluted
    
    
    32,610,654
    
    
    
    30,735,039
  3




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
 
 Consolidated Statement of Changes in Stockholders Equity
 (Dollars in thousands, except per share information)
 (unaudited)
 Notes
    
    
    AccumulatedReceivable
    
    
    Other
    
    
    TotalPreferred
    
    
    Common
    
    
    Paid-in
    
    
    Retained
    
    
    from
    
    
    Comprehensive
    
    
    StockholdersStock
    
    
    Stock
    
    
    Capital
    
    
    Earnings
    
    
    Stockholders
    
    
    Loss
    
    
    EquityBalance at December 31, 2008
    
    $
    
    
    
    $
    298
    
    
    $
    137,618
    
    
    $
    275,019
    
    
    $
    (2,225
    )
    
    $
    (13,979
    )
    
    $
    396,731Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    730
    
    
    
    
    
    
    
    
    
    
    
    730Other comprehensive
loss, currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (679
    )
    
    
    (679
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51Amortization of stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    12,025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,025Cancellation of 232,249
shares of restricted stock in
satisfaction of withholding
tax requirements
    
    
    
    
    
    
    (2
    )
    
    
    (4,461
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,463
    )Issuance of 590,284 shares of
common stock
    
    
    
    
    
    
    6
    
    
    
    14,542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,548Restricted stock units
converted
    
    
    
    
    
    
    
    
    
    
    (1,214
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,214
    )Stock-based awards vested
    
    
    
    
    
    
    
    
    
    
    (13,281
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,281
    )Tax shortfall related to
stock-based awards
    
    
    
    
    
    
    
    
    
    
    (1,334
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,334
    )Repayment of notes
receivable from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,516
    
    
    
    
    
    
    
    1,516Balance at March 31, 2009
    
    $
    
    
    
    $
    302
    
    
    $
    143,895
    
    
    $
    275,749
    
    
    $
    (709
    )
    
    $
    (14,658
    )
    
    $
    404,579
 Description of preferred stock and details:
 Number of SharesPar Value
    
    Authorized
    
    Issued
    
    OutstandingMarch 31, 2009
    
    $
    0.01
    
    
    
    10,000,000
    
    
    
    
    December 31, 2008
    
    $
    0.01
    
    
    
    10,000,000
    
    
    
    
    
 Description of common stock and details:
 Number of SharesPar Value
    
    Authorized
    
    Issued(1)
    
    Outstanding(1)March 31, 2009
    
    $
    0.01
    
    
    
    140,000,000
    
    
    
    30,191,851
    
    
    
    30,191,851December 31, 2008
    
    $
    0.01
    
    
    
    140,000,000
    
    
    
    29,833,816
    
    
    
    29,833,816
 
 (1)
    
    These share amounts exclude legally vested restricted stock
units.  4




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Cash Flows
 (Dollars in thousands)
 (unaudited)
 Three Months Ended March 31,2009
    
    
    2008Cash flows from operating activities:Net income / (loss)
    
    $
    730
    
    
    $
    (7,499
    )Adjustments to reconcile net income / (loss) to net cash used in
operating activities:Amortization of stock-based compensation
    
    
    12,025
    
    
    
    13,190Depreciation and amortization
    
    
    1,192
    
    
    
    1,158Deferred income tax expense / (benefit)
    
    
    393
    
    
    
    (4,000
    )(Increase) decrease in operating assets:Financial instruments owned, at fair value
    
    
    11,440
    
    
    
    49,055Securities purchased under resale agreements
    
    
    (8,058
    )
    
    
    15,101Receivables from clearing brokers
    
    
    4,314
    
    
    
    97,420Accounts receivable
    
    
    (200
    )
    
    
    (4,234
    )Income taxes receivable
    
    
    2,216
    
    
    
    Other assets
    
    
    (1,309
    )
    
    
    (3,697
    )Increase (decrease) in operating liabilities:Financial instruments sold, not yet purchased, at fair value
    
    
    18,231
    
    
    
    (27,290
    )Securities sold under repurchase agreements
    
    
    8,613
    
    
    
    (35,928
    )Short-term borrowings
    
    
    
    
    
    
    (4,020
    )Accounts payable, accrued expenses and other liabilities
    
    
    (92,354
    )
    
    
    (132,175
    )Income taxes payable
    
    
    149
    
    
    
    856Net cash used in operating activities
    
    
    (42,618
    )
    
    
    (42,063
    )Cash flows from investing activities:Purchase of furniture, equipment and leasehold improvements
    
    
    (1,016
    )
    
    
    (343
    )Net cash used in investing activities
    
    
    (1,016
    )
    
    
    (343
    )Cash flows from financing activities:Issuance of shares of common stock
    
    
    53
    
    
    
    Cancellation of restricted stock in satisfaction of withholding
tax
    
    
    (4,463
    )
    
    
    (2,811
    )Excess (shortfall) net tax benefit related to stock-based awards
    
    
    (1,334
    )
    
    
    113Repayment of notes receivable from stockholders
    
    
    1,516
    
    
    
    2,959Net cash (used in) / provided by financing activities
    
    
    (4,228
    )
    
    
    261Currency adjustment:Effect of exchange rate changes on cash
    
    
    (994
    )
    
    
    (24
    )Net decrease in cash and cash equivalents
    
    
    (48,856
    )
    
    
    (42,169
    )Cash and cash equivalents at the beginning of the period
    
    
    194,981
    
    
    
    194,358Cash and cash equivalents at the end of the period
    
    $
    146,125
    
    
    $
    152,189Supplemental disclosures of cash flow information:Cash paid during the period for:Income taxes
    
    $
    103
    
    
    $
    531Interest
    
    $
    260
    
    
    $
    2,668
  5




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (unaudited)
 (Dollars in thousands, except per share information)
 (1) Organization and Basis of Presentation
   (2) Summary of Significant Accounting Policies
 (a) Principles of Consolidation
   Determining Whether a
General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar
Entity When the Limited Partners Have Certain Rights
 (b) Use of Estimates
  (c) Cash and Cash Equivalents
  6




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 (d) Fair Value of Financial Instruments
 Fair
Value Measurement
  The Fair Value Option for Financial Assets and Financial Liabilities
 (e) Securities Purchased Under Resale Agreements and Securities Sold Under Repurchase Agreements
   (f) Receivables From and Payable to Clearing Brokers
  (g) Furniture, Equipment and Leasehold Improvements
  7




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
  (h) Revenue Recognition
 Investment Banking
    
    
    Underwriting revenues are recognized on trade date, net of related syndicate expenses,
at the time the underwriting is completed. In syndicated underwritten transactions,
management estimates the Companys share of transaction-related expenses incurred by the
syndicate, and the Company recognizes revenue net of such expense. On final settlement, the
Company adjusts these amounts to reflect the actual transaction-related expenses and
resulting underwriting fee.
    
    Private placement revenues are recorded when the services related to the underlying
transaction are completed under the terms of the engagement. This is generally the closing
date of the transaction.
  Commissions
  Principal transactions
  Interest and dividend income
  (i) Stock-Based Compensation
  (j) Income Taxes
  8




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109 .
 (k) Earnings Per Share (EPS)
  (l) Foreign Currency Translation
  (3) Financial Instruments
 Fair
Value Measurement
  
   9




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
    Assets at Fair Value as of March 31, 2009
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments owned, at fair value:Equities
    
    $
    19,030
    
    
    $
    17
    
    
    $
    15,128
    
    
    $
    34,175Corporate and other debt
    
    
    
    
    
    
    20,079
    
    
    
    27,796
    
    
    
    47,875Other investments
    
    
    
    
    
    
    
    
    
    
    36,252
    
    
    
    36,252Total non-derivative trading assets
    
    
    19,030
    
    
    
    20,096
    
    
    
    79,176
    
    
    
    118,302Derivative financial instruments
    
    
    756
    
    
    
    
    
    
    
    
    
    
    
    756Total financial instruments owned
    
    $
    19,786
    
    
    $
    20,096
    
    
    $
    79,176
    
    
    $
    119,058
 Liabilities at Fair Value as of March 31, 2009
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments sold, not yet
purchased, at fair value:Equities
    
    $
    20,973
    
    
    $
    
    
    
    $
    
    
    
    $
    20,973U.S. Government and agency securities
    
    
    7,957
    
    
    
    
    
    
    
    
    
    
    
    7,957Total non-derivative trading liabiilties
    
    
    28,930
    
    
    
    
    
    
    
    
    
    
    
    28,930Derivative financial instruments
    
    
    463
    
    
    
    
    
    
    
    
    
    
    
    463Total financial instruments sold, not yet purchased
    
    $
    29,393
    
    
    $
    
    
    
    $
    
    
    
    $
    29,393
 10




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 Assets at Fair Value as of December 31, 2008
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments owned, at fair value:Equities
    
    $
    19,169
    
    
    $
    7,031
    
    
    $
    14,722
    
    
    $
    40,922Corporate and other debt
    
    
    
    
    
    
    21,191
    
    
    
    32,688
    
    
    
    53,879Other investments
    
    
    
    
    
    
    
    
    
    
    34,893
    
    
    
    34,893Total non-derivative trading assets
    
    
    19,169
    
    
    
    28,222
    
    
    
    82,303
    
    
    
    129,694Derivative financial instruments
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    843Total financial instruments owned
    
    $
    20,012
    
    
    $
    28,222
    
    
    $
    82,303
    
    
    $
    130,537
 Liabilities at Fair Value as of December 31, 2008
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments sold, but not yet purchased,
at fair value:Equities
    
    $
    10,701
    
    
    $
    
    
    
    $
    
    
    
    $
    10,701Total non-derivative trading liabilities
    
    
    10,701
    
    
    
    
    
    
    
    
    
    
    
    10,701Derivative financial instruments
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    461Total financial instruments sold, not yet purchased
    
    $
    11,162
    
    
    $
    
    
    
    $
    
    
    
    $
    11,162
    Level 3 Financial Assets
 Changes in unrealizedTotal gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains and (losses)Balance as of
    
    and (losses)
    
    
    
    
    
    
    
    
    
    
    
    
    
    included in earningsDecember 31,
    
    (realized and
    
    Purchases/
    
    Transfers into
    
    Balance as of
    
    related to assets still2008
    
    unrealized)
    
    (sales), net
    
    Level 3
    
    March 31, 2009
    
    held at reporting dateNon-derivative
trading assets
    
    $
    82,303
    
    
    
    ($5,030
    )
    
    $
    1,139
    
    
    $
    764
    
    
    $
    79,176
    
    
    
    ($5,232
    )Changes in unrealizedTotal gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    gains and (losses)Balance as of
    
    and (losses)
    
    
    
    
    
    Transfers
    
    
    
    
    
    included in earningsDecember 31,
    
    (realized and
    
    Purchases/
    
    in/(out) of Level
    
    Balance as of
    
    related to assets still2007
    
    unrealized)
    
    (sales), net
    
    3
    
    March 31, 2008
    
    held at reporting dateNon-derivative
trading assets
    
    $
    171,816
    
    
    
    ($10,758
    )
    
    $
    11,288
    
    
    
    ($6,101
    )
    
    $
    166,245
    
    
    
    ($13,212
    )
 11




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
     (4) Short-Term Borrowings
  (5) Commitments and Contingencies
 (a) Leases
  (b) Litigation
 Accounting for Contingencies
   12




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 (c) Limited Partnership Commitments
  (6) Financial Instruments with Off-Balance-Sheet Risk
   (a) Broker-Dealer Activities
  (b) Derivative Financial Instruments
    Current
    
    Average
    
    End ofNotional
    
    Fair
    
    PeriodValue
    
    Value
    
    Fair ValueMarch 31, 2009:Purchased options
    
    $
    25,115
    
    
    $
    477
    
    
    $
    756Written options
    
    $
    4,010
    
    
    $
    1,151
    
    
    $
    463December 31, 2008:Purchased options
    
    $
    7,721
    
    
    $
    557
    
    
    $
    843Written options
    
    $
    6,100
    
    
    $
    344
    
    
    $
    461
  13




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 PrincipalType of Instrument
    
    Transactions, NetEquities
    
    $
    (1,115
    )Corporate and other debt
    
    
    6,683Other investments
    
    
    (1,452
    )Total
    
    $
    4,116
  (7) Concentrations of Credit Risk
   (8) Notes Receivable from Stockholders
  (9) Stock-Based Compensation
   (10) Employee Terminations
  14




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 (11) Earnings Per Share
  Three Months EndedMarch 31,2009
    
    
    2008Numerator for basic and diluted EPS-net income /
(loss)
    
    $
    730
    
    
    $
    (7,499
    )Denominator for EPS  weighted average number of
common shares outstanding(1):Basic
    
    
    31,354,507
    
    
    
    30,735,039Effect of dilutive securities  restricted stock
    
    
    1,256,147
    
    
    
    n/aDiluted
    
    
    32,610,654
    
    
    
    30,735,039Earnings per common share(1):Basic
    
    $
    0.02
    
    
    $
    (0.24
    )Diluted
    
    $
    0.02
    
    
    $
    (0.24
    )
 
 (1)
    
    In accordance with SFAS No. 128, basic and diluted common shares outstanding are
equal for the quarter ended March 31, 2008. (12) Income Taxes
  
    
    The Companys gross unrecognized tax benefits, excluding interest, have not changed
significantly since December 31, 2008.
    
    The Company classifies interest and penalties, if any, related to tax uncertainties as
income tax expenses. As of March 31, 2009, this amount had not changed significantly
since December 31, 2008.
    
    The Company and its subsidiaries file federal consolidated and various state, local and
foreign tax returns. The federal income tax returns have been audited through 2004.
Various state, local and foreign returns are subject to audits by tax authorities beginning
with the 2002 tax year. The settlement of certain state and local audits within the next
12 months, if any, is not anticipated to have a significant impact on the Companys results
or financial position.
 (13) Industry Segment Data
 Disclosures about Segments of an
Enterprise and Related Information
 (14) Net Capital Requirement
  15




---



##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 March 31, 2009Net Capital
    
    $
    106,148Excess
    
    $
    103,857
  (15) Recent Accounting Developments
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly
 16




---



##### Table of Contents



ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion should be read in conjunction with our unaudited consolidated
financial statements and the related notes included elsewhere in this report.
 Cautionary Statement Regarding Forward Looking Statements
   Overview
       17




---



##### Table of Contents



Business Environment
       18




---



##### Table of Contents



Results of Operations
 Three Months Ended March 31, 2009 Compared with Three Months Ended March 31, 2008
 Overview
    Three Months EndedMarch 31,
    
    
    Period-to-Period2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(unaudited)Revenues:Investment banking
    
    $
    26,860
    
    
    $
    43,087
    
    
    $
    (16,227
    )
    
    
    (37.7
    )%Commissions
    
    
    36,019
    
    
    
    52,766
    
    
    
    (16,747
    )
    
    
    (31.7
    )Principal transactions, net
    
    
    4,116
    
    
    
    (30,100
    )
    
    
    34,216
    
    
    
    N/MInterest and dividend income
    
    
    1,738
    
    
    
    8,092
    
    
    
    (6,354
    )
    
    
    (78.5
    )Investment advisory fees
    
    
    313
    
    
    
    306
    
    
    
    7
    
    
    
    2.3Other
    
    
    3,230
    
    
    
    701
    
    
    
    2,529
    
    
    
    360.8Total revenues
    
    
    72,276
    
    
    
    74,852
    
    
    
    (2,576
    )
    
    
    (3.4
    )Expenses:Compensation and benefits
    
    
    45,667
    
    
    
    59,933
    
    
    
    (14,266
    )
    
    
    (23.8
    )Non-compensation expenses:Occupancy and equipment
    
    
    5,159
    
    
    
    4,743
    
    
    
    416
    
    
    
    8.8Communications and
data processing
    
    
    6,660
    
    
    
    6,423
    
    
    
    237
    
    
    
    3.7Brokerage and clearance
    
    
    3,882
    
    
    
    7,153
    
    
    
    (3,271
    )
    
    
    (45.7
    )Business development
    
    
    3,032
    
    
    
    3,789
    
    
    
    (757
    )
    
    
    (20.0
    )Interest
    
    
    169
    
    
    
    2,068
    
    
    
    (1,899
    )
    
    
    (91.8
    )Other
    
    
    5,777
    
    
    
    4,180
    
    
    
    1,597
    
    
    
    38.2Non-compensation expenses
    
    
    24,679
    
    
    
    28,356
    
    
    
    (3,677
    )
    
    
    (13.0
    )Total expenses
    
    
    70,346
    
    
    
    88,289
    
    
    
    (17,943
    )
    
    
    (20.3
    )Income / (loss) before income taxes
    
    
    1,930
    
    
    
    (13,437
    )
    
    
    15,367
    
    
    
    N/MIncome tax expense / (benefit)
    
    
    1,200
    
    
    
    (5,938
    )
    
    
    7,138
    
    
    
    N/MNet income / (loss)
    
    $
    730
    
    
    $
    (7,499
    )
    
    $
    8,229
    
    
    
    N/M
    %
 
 N/M = Not Meaningful 19




---



##### Table of Contents



Non-GAAP Financial Measures
 Share-Based Payment,
     20




---



##### Table of Contents



GAAP
    
    
    Reconciliation
 Amount
    
    
    Non-GAAP(dollars in thousands, except per share information)Quarter Ended March 31, 2009:Compensation and benefits expense
    
    $
    45,667
    
    
    $
    (2,302
    ) (a)
    
    $
    43,365Income before income taxes
    
    $
    1,930
    
    
    $
    2,302
    (a)
    
    $
    4,232Income tax expense
    
    $
    1,200
    
    
    $
    1,431
    (b)
    
    $
    2,631Net income
    
    $
    730
    
    
    $
    871
    (c)
    
    $
    1,601Compensation ratio (d)
    
    
    63.2
    %
    
    
    
    
    
    
    60.0
    %Earnings per share:Basic
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.05Diluted
    
    $
    0.02
    
    
    $
    0.03
    
    
    $
    0.05Weighted average number of
common shares outstanding:Basic
    
    
    31,354,507
    
    
    
    
    (f)
    
    
    31,354,507Diluted
    
    
    32,610,654
    
    
    
    
    (f)
    
    
    32,610,654Quarter Ended March 31, 2008:Compensation and benefits expense
    
    $
    59,933
    
    
    $
    (2,673
    ) (a)
    
    $
    57,260(Loss) / income before income taxes
    
    $
    (13,437
    )
    
    $
    2,673
    (a)
    
    $
    (10,764
    )Income tax (benefit) / expense
    
    $
    (5,938
    )
    
    $
    1,181
    (b)
    
    $
    (4,757
    )Net (loss) / income
    
    $
    (7,499
    )
    
    $
    1,492
    (c)
    
    $
    (6,007
    )Compensation ratio (d)
    
    
    80.1
    %
    
    
    
    
    
    
    76.5
    %Earnings per share (e):Basic
    
    $
    (0.24
    )
    
    $
    0.04
    
    
    $
    (0.20
    )Diluted
    
    $
    (0.24
    )
    
    $
    0.04
    
    
    $
    (0.20
    )Weighted average number of
common shares outstanding (e):Basic
    
    
    30,735,039
    
    
    
    
    (f)
    
    
    30,735,039Diluted
    
    
    30,735,039
    
    
    
    
    (f)
    
    
    30,735,039
 
 (a)
    
    The non-GAAP adjustment represents the pre-tax expense with respect to the amortization of the
IPO restricted stock awards granted to employees on November 2006.(b)
    
    The non-GAAP adjustment with respect to income tax expense / (benefit) represents the elimination
of the tax benefit resulting from the amortization of the IPO restricted stock awards in the
period.(c)
    
    The non-GAAP adjustment with respect to net income / (loss) was the after-tax amortization of the
IPO restricted stock awards in the period.(d)
    
    The first quarter 2009 and first quarter 2008 compensation ratios were calculated by dividing
compensation and benefits expense by total revenues of $72,276, and $74,852, respectively.(e)
    
    In accordance with Statement of Financial Accounting Standards No. 128, basic and diluted common
shares outstanding are equal for the quarter ended March 31, 2008.(f)
    
    Both the basic and diluted weighted average number of common shares outstanding were not adjusted.  21




---



##### Table of Contents



Revenues
 Investment Banking
  Commissions
  Principal Transactions, Net
  Interest and Dividend Income
  Other
  22




---



##### Table of Contents



Expenses
 Compensation and Benefits
  Brokerage and Clearance
  Interest
  Business Development
  Other
  Income Tax Expense / (Benefit)
  Critical Accounting Policies and Estimates
   23




---



##### Table of Contents



Fair Value of Financial Instruments
 Fair Value Measurements
 The Fair Value Option for Financial Assets and Financial Liabilities
   Fair Value Hierarchy
       24




---



##### Table of Contents



Fair Value of Financial Instruments Control Process
  Income Taxes
  Accounting for Uncertainty in Income Taxes, an
interpretation of FASB Statement No. 109,
 25




---



##### Table of Contents



Contractual Obligations
  Off-Balance Sheet Arrangements
   Recently Issued Accounting Standards, Not Yet Adopted
 Determining Fair Value When the Volume and
Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly
 Liquidity and Capital Resources
     26




---



##### Table of Contents



Cash Flows
 Three months ended March 31, 2009.
   Three months ended March 31, 2008.
  27




---



##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk
     High
    
    Low
    
    Average(dollars in thousands)Long Value:Equities
    
    $
    41,765
    
    
    $
    33,323
    
    
    $
    36,721Corporate and other debt
    
    $
    53,879
    
    
    $
    44,373
    
    
    $
    49,768Other investments
    
    $
    36,252
    
    
    $
    34,893
    
    
    $
    35,615Short Value:Equities
    
    $
    21,436
    
    
    $
    11,162
    
    
    $
    15,670Corporate and other debt
    
    $
    41
    
    
    $
    
    
    
    $
    14U.S. Government and agency securities
    
    $
    7,957
    
    
    $
    
    
    
    $
    1,989
 Interest Rate Risk
  Credit Risk
  28




---



##### Table of Contents



Inflation Risk
  Operational Risk
  29




---



##### Table of Contents



ITEM 4. Controls and Procedures
    30




---



##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
  
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number ofShares Purchased as
    
    Approximate Dollar ValueTotal Number
    
    
    
    
    
    Part of Publicly
    
    of Shares that May Yet Beof Shares
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under the PlansPeriod
    
    Purchased(1)(2)
    
    per Share
    
    Programs
    
    or ProgramsJanuary 1, 2009 to January 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    February 1, 2009 to February 28, 2009
    
    
    175,836
    
    
    $
    18.78
    
    
    
    
    
    
    
    March 1, 2009 to March 31, 2009
    
    
    56,413
    
    
    $
    20.57
    
    
    
    
    
    
    
    Total
    
    
    232,249
    
    
    $
    19.68
    
    
    
    
    
    
    
    
 
 (1)
    
    All shares purchased were other than as part of a publicly announced
plan or program. The purchased shares consist of common stock
previously purchased by employees with funds loaned by us that were
subsequently forfeited by such employees upon their departure. As a
result of such forfeitures, the outstanding balances on the related
loans were reduced to zero.(2)
    
    All shares were immediately retired upon purchase by us. 
 ITEM 3. Defaults Upon Senior Securities
  
 ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
  
 ITEM 6. Exhibits
  31




---



##### Table of Contents



KBW, INC.By:
    /s/ JOHN G. DUFFYName:
    John G. DuffyTitle:
    Chairman and Chief Executive OfficerBy:
    /s/ ROBERT GIAMBRONEName:
    Robert GiambroneTitle:
    Chief Financial Officer 32




---



##### Table of Contents



ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to Rule
13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 33