##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, D.C.
    20549
  Form 10-Q
  (Mark One)þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended
    September 30, 2007ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission File Number:
    001-33138
  KBW, INC.
 (Exact name of registrant as
    specified in its charter)
  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
 (Address of principal executive
    offices)
  Registrants telephone number:
    (212) 887-7777
   þ o
  Rule 12b-2
 o o þ
  Rule 12b-2 o þ




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##### 



TABLE OF
    CONTENTS
  PageNumberAVAILABLE INFORMATION


1PART I.

FINANCIAL INFORMATION


2Item 1.

Financial Statements


2Consolidated Statements of Financial
    Condition  September 30, 2007 (Unaudited) and
    December 31, 2006


2Consolidated Statements of Income 
    Three Months and Nine Months ended September 30, 2007 and
    2006 (Unaudited)


3Consolidated Statement of Changes in
    Stockholders Equity  Nine Months ended
    September 30, 2007 (Unaudited)


4Consolidated Statements of Cash Flows 
    Nine Months ended September 30, 2007 and 2006
    (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


33Item 4.

Controls and Procedures


35PART II.

OTHER INFORMATION


35Item 1.

Legal Proceedings


35Item 1A.

Risk Factors


35Item 2.

Unregistered Sales of Equity Securities and Use
    of Proceeds


35Item 3.

Defaults Upon Senior Securities


36Item 4.

Submission of Matters to a Vote of Security
    Holders


36Item 5.

Other Information


36Item 6.

Exhibits


36SIGNATURES


37EXHIBIT INDEX


38EX-3.1: AMENDED AND RESTATED CERTIFICATE OF INCORPORATIONEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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##### Table of Contents



AVAILABLE
    INFORMATION
  1-800-SEC-0330. http://www.sec.gov,
  http://www.kbw.com, Form 10-K, Form 10-Q, Form 8-K,
  th (212) 887-7777.
 1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION
  ITEM 1.
    Financial
    Statements  KBW, INC.
    AND SUBSIDIARIES
    Consolidated Statements of Financial Condition
    (Dollars in thousands)
  September 30,2007


December 31,(Unaudited)


2006ASSETSCash and cash equivalents

$
175,902


$
165,647Financial instruments owned, at fair value:Equities


158,138



117,285Corporate and other debt


270,466



135,744U.S. Government and agency securities






15,905Mortgage backed securities






14,645Other investments


61,860



47,158490,464



330,737Securities purchased under resale agreements


48,453



62,319Receivables from clearing brokers


107,299



185,712Accounts receivable


21,754



25,740Furniture, equipment and leasehold improvements, at cost, less
    accumulated depreciation and of $22,018 in 2007 and $18,297 in
    2006


20,737



22,151Other assets


30,997



11,905Total assets

$
895,606


$
804,211LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Payable to clearing broker

$
1,135


$
Securities sold under repurchase agreements


123,116



84,536Short-term borrowings


84,750



28,500Financial instruments sold, not yet purchased, at fair value:Equities


55,516



29,528Corporate and other debt






5,082U.S. Government and agency securities


44,547



76,362100,063



110,972Accounts payable, accrued expenses, and other liabilities


133,667



166,671Income taxes payable


12,849



16,772Total liabilities


455,580



407,451Stockholders equity:Preferred stock






Common stock


293



292Paid-in capital


109,375



94,419Retained earnings


333,726



310,076Notes receivable from stockholders


(5,254
)


(8,843
)Accumulated other comprehensive income


1,886



816Total stockholders equity


440,026



396,760Total liabilities and stockholders equity

$
895,606


$
804,211    2




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KBW, INC.
    AND SUBSIDIARIES
    Consolidated Statements of Income
    (Dollars in thousands, except per share information)
    (Unaudited)
  Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006Revenues:Investment banking

$
60,132


$
49,204


$
174,077


$
142,833Commissions


44,457



25,479



119,857



86,039Principal transactions, net


(14,943
)


9,567



(3,134
)


35,308Interest and dividend income


10,317



7,595



27,544



19,323Investment advisory fees


436



508



1,258



1,293Other


736



859



2,564



1,561Total revenues


101,135



93,212



322,166



286,357Expenses:Compensation and benefits


58,658



54,118



188,882



166,847Occupancy and equipment


4,922



4,528



13,977



13,047Communications and data processing


6,205



5,113



17,771



14,387Brokerage and clearance


6,361



3,976



17,417



14,993Interest


4,610



3,014



11,273



8,278Other


10,517



7,822



30,617



20,739Total expenses


91,273



78,571



279,937



238,291Income before income tax expense


9,862



14,641



42,229



48,066Income tax expense


4,327



5,331



18,579



20,206Net income (Note 9)

$
5,535


$
9,310


$
23,650


$
27,860Earnings per common share (Note 9):Basic

$
0.18


$
0.35


$
0.77


$
1.03Diluted

$
0.18


$
0.35


$
0.75


$
1.03Weighted average number of common shares outstanding:Basic


30,665,945



26,749,483



30,636,898



27,013,417Diluted


31,546,276



26,749,483



31,537,188



27,013,417    3




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KBW, INC.
    AND SUBSIDIARIES
    Consolidated Statement of Changes in Stockholders
    Equity
    Nine Months Ended September 30, 2007
    (Dollars in thousands, except per share information)
    (Unaudited)
  Notes


AccumulatedReceivable


Other


TotalPreferred


Common


Paid-in


Retained


from


Comprehensive


StockholdersStock


Stock


Capital


Earnings


Stockholders


Income


EquityBalance at December 31, 2006

$



$
292


$
94,419


$
310,076


$
(8,843
)

$
816


$
396,760Net income














23,650











23,650Other comprehensive income, currency translation adjustment, net
    of tax of $827






















1,070



1,070Total comprehensive income


























24,720Amortization of stock-based compensation










15,923















15,923Purchase of 79,172 shares of common stock










(2,170
)






205







(1,965
)Issuance of 163,244 shares of common stock






1



2,641















2,642Restricted stock units converted










(2,642
)














(2,642
)Excess tax benefit related to the delivery of restricted stock










1,204















1,204Repayment of notes receivable from stockholders


















3,384







3,384Balance at September 30, 2007

$



$
293


$
109,375


$
333,726


$
(5,254
)

$
1,886


$
440,026   Description
    of preferred stock and details:
  Number of SharesPar Value

Authorized

Issued

OutstandingSeptember 30, 2007

$
0.01



10,000,000







December 31, 2006

$
0.01



10,000,000







   Description
    of common stock and details:
  Number of SharesPar Value

Authorized

Issued(1)

Outstanding(1)September 30, 2007

$
0.01



140,000,000



29,289,013



29,289,013December 31, 2006

$
0.01



140,000,000



29,204,941



29,204,941   (1)
    
    These amounts exclude legally vested Restricted Stock Units.   4




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KBW, INC.
    AND SUBSIDIARIES
    Consolidated Statements of Cash Flows
    (Dollars in thousands)
    (Unaudited)
 Nine Months Ended September 30,2007


2006Cash flows from operating activities:Net income

$
23,650


$
27,860Adjustments to reconcile net income to net cash provided by
    operating activities:Non-monetary transaction


(6,518
)


Amortization of stock-based compensation


15,923



1,348Depreciation and amortization


3,638



4,447Deferred income tax (benefit) expense


(14,249
)


706(Increase) decrease in operating assets:Financial instruments owned, at fair value


(153,209
)


(46,221
)Securities purchased under resale agreements


13,866



11,133Receivables from clearing brokers


78,413



(42,303
)Accounts receivable


3,986



10,889Other assets


(4,843
)


(933
)Increase (decrease) in operating liabilities:Financial instruments sold, not yet purchased, at fair value


(10,909
)


55,141Securities sold under repurchase agreements


38,580



84,416Short-term borrowings


56,250



(31,500
)Payable to clearing broker


1,135



(68,053
)Accounts payable, accrued expenses and other liabilities


(33,004
)


(90
)Income taxes payable


(3,923
)


(1,574
)Net cash provided by operating activities


8,786



5,266Cash flows from investing activities:Purchase of furniture, equipment and leasehold improvements


(2,224
)


(1,955
)Net cash used in investing activities


(2,224
)


(1,955
)Cash flows from financing activities:Issuance of shares of common stock






310Purchases of shares of common stock


(1,965
)


(10,981
)Excess tax benefit related to the delivery of restricted stock
    units


1,204



363Repayment of notes receivable from stockholders


3,384



6,503Net cash provided by (used in) financing activities


2,623



(3,805
)Currency adjustment:Effect of exchange rate changes on cash


1,070



806Net increase in cash and cash equivalents


10,255



312Cash and cash equivalents at the beginning of the period


165,647



75,642Cash and cash equivalents at the end of the period

$
175,902


$
75,954Supplemental disclosures of cash flow information:Cash paid during the period for:Income taxes

$
39,811


$
20,117Interest

$
10,671


$
7,781    5




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Dollars in thousands, except per share information)
    (unaudited)
  (1)
    Organization
    and Basis of Presentation    Form 10-K
  (2)
    Summary
    of Significant Accounting Policies  (a)
    Principles
    of Consolidation    No. 04-5, 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 (EITF 04-5). EITF 04-5 EITF 04-5
  (b)
    Use of
    Estimates   6




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
    (c)
    Cash
    and Cash Equivalents    (d)
    Fair
    Value of Financial Instruments  Disclosures About Fair Value
    of Financial Instruments
  Fair Value Measurements No. 02-3
     7




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
  (e)
    Securities
    Purchased Under Resale Agreements and Securities Sold Under
    Repurchase Agreements      (f)
    Receivables
    From and Payable to Clearing Brokers    (g)
    Investment
    Banking    
    Underwriting revenues.  The Company earns
    underwriting revenues in securities offerings in which it acts
    as an underwriter, such as initial public offerings, follow-on
    equity offerings and fixed income offerings. Underwriting
    revenues include management fees, underwriting fees and selling
    concessions, including fees related to mutual thrift
    conversions. Underwriting revenues are recorded, 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.
    Strategic advisory revenues.  The
    Companys strategic advisory revenues primarily include
    success fees, as well as retainer fees, earned in connection
    with advising companies, both buyers and sellers, principally in
    M&A. The Company also earns fees for related advisory work
    and other services such as providing fairness and valuation
    opinions. Strategic advisory revenues are recorded when the
    transactions or the services (or, if applicable, separate
    components thereof) to be performed are substantially complete,
    the fees are determinable and collection is reasonably assured.
    Private placement revenues.  The Company earns
    agency placement fees in non-underwritten transactions such as
    private placements, including securitized debt offerings
    collateralized by financial services issuers securities.
    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.   8




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
  (h)
    Furniture,
    Equipment and Leasehold Improvements    (i)
    Income
    Taxes    Accounting for Uncertainty in
    Income Taxes, an interpretation of FASB Statement No. 109,
  (j)
    Foreign
    Currency Translation    (k)
    Earnings
    Per Share (EPS)      (l)
    Stock-Based
    Compensation  Share-Based Payment,
 9




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
   (m)
    Reclassifications    (3)
    Financial
    Instruments  Fair Value Measurements
    Level 1

Quoted market prices in active markets for identical assets or
    liabilities.Level 2

Observable market based inputs or unobservable inputs that are
    corroborated by market data.Level 3

Unobservable inputs that are not corroborated by market data.          10




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
  Assets at
    Fair Value as of September 30, 2007
  Level 1


Level 2


Level 3


TotalFinancial instruments owned, at fair value:Non-derivative trading inventory

$
133,416


$
276,621


$
80,355


$
490,392Derivative trading inventory


72











72Total financial instruments owned

$
133,488


$
276,621


$
80,355


$
490,464   Liabilities
    at Fair Value as of September 30, 2007
  Level 1


Level 2


Level 3


TotalFinancial instruments sold, not yet purchased, at fair
    value:Non-derivative trading inventory

$
99,922


$



$



$
99,922Derivative trading inventory


141











141Total financial instruments sold, not yet purchased

$
100,063


$



$



$
100,063         Level 3
    Financial Assets
    Nine Months Ended September 30, 2007
  Changes in UnrealizedGains and (Losses)Balance as of

Total Gains and



Transfers

Balance as of

Included in EarningsDecember 31,

(Losses) (Realized

Purchases/

in/(Out) of

September 30,

Related to Assets Still2006

and Unrealized)

(Sales), Net

Level 3

2007

Held at Reporting DateNon-derivative trading assets

$
56,227


$
(3,104
)

$
21,842


$
5,390


$
80,355


$
(6,202
)   Level 3
    Financial Assets
    Three Months Ended September 30, 2007
  Changes in UnrealizedGains and (Losses)Total Gains and



Transfers

Balance as of

Included in EarningsBalance as of

(Losses) (Realized

Purchases/

in/(Out) of

September 30,

Related to Assets StillJune 30, 2007

and Unrealized)

(Sales), Net

Level 3

2007

Held at Reporting DateNon-derivative trading assets

$
73,634


$
(6,312
)

$
7,643


$
5,390


$
80,355


$
(6,312
)  11




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




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
  (6)
    Financial
    Instruments with Off-Balance-Sheet Risk  and/or
    (a)
    Broker-Dealer
    Activities    (b)
    Derivative
    Financial Instruments        Current


Average


End ofNotional


Fair


PeriodAmount


Value


Fair ValueSeptember 30, 2007:Purchased options

$
2,100


$
104


$
72Written options

$
9,020


$
29


$
141Short futures contracts

$
19,874


$



$
December 31, 2006:Purchased options

$
500


$
92


$
160Written options

$
400


$
87


$
5Short futures contracts

$
2,375


$



$
   (7)
    Concentrations
    of Credit Risk   13




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
    and/or
  (8)
    Notes
    Receivable from Stockholders    (9)
    Common
    Stock    (10)
    Non-Monetary
    Transaction    (11)
    Stock-Based
    Compensation       14




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
    (12)
    Earnings
    Per Share      Three Months Ended


Nine Months EndedSeptember 30,


September 30,2007


2006


2007


2006Numerator for basic and diluted
    EPS-net
    income

$
5,535


$
9,310


$
23,650


$
27,860Denominator for earnings per common share 
    weighted-average common shares outstanding:Basic


30,665,945



26,749,483



30,636,898



27,013,417Effect of dilutive securities  restricted stock


880,331







900,290



Diluted


31,546,276



26,749,483



31,537,188



27,013,417Earnings per common share:Basic

$
0.18


$
0.35


$
0.77


$
1.03Diluted

$
0.18


$
0.35


$
0.75


$
1.03   (13)
    Income
    Taxes    
    Unrecognized tax benefits including interest were approximately
    $5.8 million as of January 1, 2007 and approximately
    $6.3 million as of September 30, 2007, the majority of
    which, if recognized, would impact the effective tax rate.
    Following the adoption of FIN 48, the Company continues to
    classify interest and penalties, if any, related to tax
    uncertainties as income taxes. As of January 1, 2007 and
    September 30, 2007, $0.5 million and $0.8 million
    of interest, net of federal tax benefit, respectively, were
    included in the total unrecognized tax benefit indicated above.
    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. 15




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KBW, INC.
    AND SUBSIDIARIES
    NOTES TO CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    (Dollars in thousands, except per share information)
    (unaudited)
   (14)
    Industry
    Segment Data  Disclosures about Segments of an Enterprise and Related
    Information
  (15)
    Recent
    Accounting Developments  The
    Fair Value Option for Financial Assets and Financial
    Liabilities instrument-by-instrument
  (16)
    Net
    Capital Requirement  Rule 15c3-1
  September 30, 2007Net Capital

$
142,750Excess Capital

$
139,266    16




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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
  Form 10-Q Form 10-K
    Overview
    
    Investment banking.  We provide a full range of
    investment banking services, including M&A and other
    strategic advisory services, equity and fixed income securities
    offerings and structured finance.
    Equity and fixed income sales and trading.  We
    trade a broad array of financial services stocks, with an
    emphasis on the small and mid cap segment, and a wide range of
    fixed income securities. Our sales force is trained in the
    analysis of financial services companies and has strong
    relationships with many of the worlds largest
    institutional investors.
    Research.  We provide fundamental, objective
    analysis that identifies investment opportunities and assists
    our investor customers in making investment decisions.     17




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Revenues
    Investment
    Banking
    
    Underwriting revenues.  We earn underwriting
    revenues in securities offerings in which we act as an
    underwriter, such as initial public offerings, follow-on equity
    offerings and fixed income offerings. Underwriting revenues
    include management fees, underwriting fees and selling
    concessions, including fees related to mutual thrift
    conversions. We record underwriting revenues, net of related
    syndicate expenses, at the time the underwriting is completed.
    In syndicated underwritten transactions, management estimates
    our share of transaction-related expenses incurred by the
    syndicate, and we recognize revenue net of such expense. On
    final settlement, we adjust these amounts to reflect the actual
    transaction-related expenses and our resulting underwriting fee.
    We receive a higher proportion of total fees in underwritten
    transactions in which we act as a lead manager.
    Strategic advisory revenues.  Our strategic
    advisory revenues primarily include success fees, as well as
    retainer fees, earned in connection with advising companies,
    both buyers and sellers, principally in M&A. We also earn
    fees for related advisory work and other services such as
    providing fairness and valuation opinions. We record strategic
    advisory revenues when the transactions or the services (or, if
    applicable, separate components thereof) to be performed are
    substantially complete, the fees are determinable and collection
    is reasonably assured.
    Private placement revenues.  We earn agency
    placement fees in non-underwritten transactions such as private
    placements, including securitized debt offerings collateralized
    by financial services issuers securities, which we refer
    to as PreTSLs. We record private placement revenues
    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. 18




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Sales
    and Trading
    
    Commissions.  Our sales and trading business
    generates revenue from equity securities trading commissions
    paid by institutional investor customers. Commissions are
    recognized on a trade date basis.
    Principal transactions.  Fixed
    Income  Our sales and trading revenues include net
    trading gains and losses from acting as a principal in the
    facilitation of customer orders. Our fixed income sales and
    trading includes new issue and secondary market trading in
    mortgage backed securities, U.S. government and agency
    securities and corporate debt securities. We also maintain a
    financial strategies group that advises customers on the
    structure of their investment portfolios. Our loan portfolio
    sales group also performs similar services arranging for the
    purchase or sale of performing or non-performing loans.  
  Interest
    and Dividend Income
    Investment
    Advisory Fees
    Other
    Expenses
      Compensation
    and Benefits
   19




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##### Table of Contents



Non-Compensation
    Expense
  Occupancy
    and Equipment
    Communications
    and Data Processing
    Brokerage
    and Clearance
    Interest
    Other
    Income
    Tax Expense
  Accounting for Uncertainty in
    Income Taxes, an interpretation of FASB Statement No. 109,
 20




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##### Table of Contents



Business
    Environment
        Results
    of Operations
  Three
    Months Ended September 30, 2007 Compared with Three Months
    Ended September 30, 2006
  Overview
       21




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##### Table of Contents



Three Months EndedSeptember 30,


Period-to-Period2007


2006


$ Change


% Change(Unaudited)Revenues:Investment banking

$
60,132


$
49,204


$
10,928



22.2
%Commissions


44,457



25,479



18,978



74.5Principal transactions, net


(14,943
)


9,567



(24,510
)


(256.2
)Interest and dividend income


10,317



7,595



2,722



35.8Investment advisory fees


436



508



(72
)


(14.2
)Other


736



859



(123
)


(14.3
)Total revenues


101,135



93,212



7,923



8.5Expenses:Compensation and benefits


58,658



54,118



4,540



8.4Non-compensation expenses:Occupancy and equipment


4,922



4,528



394



8.7Communications and data processing


6,205



5,113



1,092



21.4Brokerage and clearance


6,361



3,976



2,385



60.0Interest


4,610



3,014



1,596



53.0Other


10,517



7,822



2,695



34.5Total non-compensation expenses


32,615



24,453



8,162



33.4Total expenses


91,273



78,571



12,702



16.2Income before income tax expense


9,862



14,641



(4,779
)


(32.6
)Income tax expense


4,327



5,331



(1,004
)


(18.8
)Net income

$
5,535


$
9,310


$
(3,775
)


(40.5
)%   Three
    Month Non-GAAP Financial Measures
     22




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##### Table of Contents



Share-Based
    Payment
        (Dollars in thousands, except per share information)Three Months Ended:9/30/2007


9/30/2006GAAP


Reconciliation


Non-GAAP


GAAPCompensation and benefits expense

$
58,658


$
(3,128
)(a)

$
55,530


$
54,118Income before income tax expense

$
9,862


$
3,128
(a)

$
12,990


$
14,641Income tax expense

$
4,327


$
1,372
(b)

$
5,699


$
5,331Net income

$
5,535


$
1,756
(c)

$
7,291


$
9,310Compensation ratio(d)


58.0
%






54.9
%


58.1
%Earnings per share:Basic

$
0.18


$
0.06


$
0.24


$
0.35Diluted

$
0.18


$
0.05


$
0.23


$
0.35Weighted average number of common shares outstanding:Basic


30,665,945




(e)


30,665,945



26,749,483Diluted


31,546,276




(e)


31,546,276



26,749,483     (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 8, 2006.(b)
    
    The non-GAAP adjustment with respect to income tax expense
    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 was the
    after-tax amortization of the IPO restricted stock awards in the
    period.(d)
    
    The compensation ratio with respect to the three months ended
    September 30, 2007 and 2006 was calculated by dividing
    compensation and benefits expense by total revenues of $101,135
    and $93,212, respectively.(e)
    
    Both the basic and diluted weighted average number of common
    shares outstanding were not adjusted. 23




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##### Table of Contents



Revenues
  Investment
    Banking
      Commissions
    Principal
    Transactions, Net
    
    Unrealized losses on fixed income securities including
    securities held for PreTSL securitizations.
    Higher equity market making losses.
    Lower gains on equity securities trading for our own account.
    Decreased volume in transactions with customers in fixed-income
    securities, leading to lower aggregate markups and markdowns.  Interest
    and Dividend Income
    Investment
    Advisory Fees
    Other
   24




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##### Table of Contents



Expenses
  Compensation
    and Benefits
      Occupancy
    and Equipment
    Communications
    and Data Processing
    Brokerage
    and Clearance
    Interest
    Other
    Income
    Tax Expense
   25




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##### Table of Contents



Nine
    Months Ended September 30, 2007 Compared with Nine Months
    Ended September 30, 2006
  Overview
          For the Nine MonthsEnded September 30,


Period-to-Period2007


2006


$ Change


% Change(Unaudited)Revenues:Investment banking

$
174,077


$
142,833


$
31,244



21.9
%Commissions


119,857



86,039



33,818



39.3Principal transactions, net


(3,134
)


35,308



(38,442
)


(108.9
)Interest and dividend income


27,544



19,323



8,221



42.5Investment advisory fees


1,258



1,293



(35
)


(2.7
)Other


2,564



1,561



1,003



64.3Total revenues


322,166



286,357



35,809



12.5Expenses:Compensation and benefits


188,882



166,847



22,035



13.2Non-compensation expenses:Occupancy and equipment


13,977



13,047



930



7.1Communications and data processing


17,771



14,387



3,384



23.5Brokerage and clearance


17,417



14,993



2,424



16.2Interest


11,273



8,278



2,995



36.2Other


30,617



20,739



9,878



47.6Total non-compensation expenses


91,055



71,444



19,611



27.4Total expenses


279,937



238,291



41,646



17.5Income before income tax expense


42,229



48,066



(5,837
)


(12.1
)Income tax expense


18,579



20,206



(1,627
)


(8.1
)Net income

$
23,650


$
27,860


$
(4,210
)


(15.1
)%  26




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##### Table of Contents



Nine
    Month Non-GAAP Financial Measures
    (Dollars in thousands, except per share information)Nine Months Ended:9/30/2007


9/30/2006GAAP


Reconciliation


Non-GAAP


GAAPCompensation and benefits expense

$
188,882


$
(9,290
)(a)

$
179,592


$
166,847Income before income tax expense

$
42,229


$
9,290
(a)

$
51,519


$
48,066Income tax expense

$
18,579


$
4,088
(b)

$
22,667


$
20,206Net income

$
23,650


$
5,202
(c)

$
28,852


$
27,860Compensation ratio(d)


58.6
%






55.7
%


58.3
%Earnings per share:Basic

$
0.77


$
0.17


$
0.94


$
1.03Diluted

$
0.75


$
0.16


$
0.91


$
1.03Weighted average number of common shares outstanding:Basic


30,636,898




(e)


30,636,898



27,013,417Diluted


31,537,188




(e)


31,537,188



27,013,417     (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 8, 2006.(b)
    
    The non-GAAP adjustment with respect to income tax expense
    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 was the
    after-tax amortization of the IPO restricted stock awards in the
    period.(d)
    
    The compensation ratio with respect to the nine months ended
    September 30, 2007 and 2006 was calculated by dividing
    compensation and benefits expense by total revenues of $322,166
    and $286,357, respectively.(e)
    
    Both the basic and diluted weighted average number of common
    shares outstanding were not adjusted.    Revenues
  Investment
    Banking
   27




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##### Table of Contents



Commissions
    Principal
    Transactions, Net
    Interest
    and Dividend Income
    Investment
    Advisory Fees
    Other
    Expenses
  Compensation
    and Benefits
      Occupancy
    and Equipment
   28




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##### Table of Contents



Communications
    and Data Processing
    Brokerage
    and Clearance
    Interest
    Other
    Income
    Tax Expense
    Critical
    Accounting Policies and Estimates
      
    The nature of the estimate or assumption is material due to the
    level of subjectivity and judgment necessary to account for
    highly uncertain matters or the susceptibility of such matters
    to change; and
    The impact of the estimate or assumption on our financial
    condition or operating performance is material. 29




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##### Table of Contents



Fair
    Value of Financial Instruments
  Disclosures About Fair Value
    of Financial Instruments
  Fair Value Measurements No. 02-3
      Contractual
    Obligations
    Off-Balance
    Sheet Arrangements
   30




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##### Table of Contents



Recently
    Issued Accounting Standards, Not Yet Adopted
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities instrument-by-instrument
  Liquidity
    and Capital Resources
           31




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##### Table of Contents



Cash
    Flows
  Nine months ended September 30,
    2007.
      Nine months ended September 30,
    2006.
     32




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##### Table of Contents



ITEM 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Market
    Risk
  and/or
        High


Low


Average(Dollars in thousands)Long value:Equities

$
173,990


$
116,393


$
153,328Corporate and other debt

$
323,765


$
132,498


$
244,045U.S. Government and agency securities

$
45,591


$



$
13,598Mortgage Backed Securities

$
14,645


$



$
2,304Other investments

$
62,777


$
41,556


$
52,509Short value:Equities

$
56,430


$
29,528


$
46,102Corporate and other debt

$
9,936


$



$
2,953U.S. Government and agency securities

$
110,057


$
42,841


$
70,610Mortgage Backed Securities

$
5,876


$



$
588   Interest
    Rate Risk
    Credit
    Risk
   33




---



##### Table of Contents



Inflation
    Risk
    Operational
    Risk
   34




---



##### Table of Contents



ITEM 4.
    Controls
    and Procedures        PART II 
    OTHER INFORMATION
  ITEM 1.
    Legal
    Proceedings  Rule 12b-2 Form 10-K Form 10-Q
    ITEM 1A.
    Risk
    Factors  Form 10-K
  ITEM 2.
    Unregistered
    Sales of Equity Securities and Use of Proceeds    Rule 10b-18(a)(3)
  35




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##### Table of Contents



Total Number of


Approximate DollarShares Purchased as


Value of Shares thatTotal Number





Part of Publicly


May Yet beof Shares


Average Price


Announced Plans


Purchased Under thePeriod

Purchased(1)(2)


Paid per Share


or Programs


Plans or ProgramsJuly 1  July 31, 2007


18,599


$
27.56







August 1  August 31, 2007














September 1  September 30, 2007














Total


18,599


$
27.56







     (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   36




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##### Table of Contents



SIGNATURES
        By:
    /s/  JOHN
    G. DUFFY   Title:
    Chairman and Chief Executive Officer  By:
    /s/  ROBERT
    GIAMBRONE   Title:
    Chief Financial Officer 37




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber

Description3
.1

Second Amended and Restated Certificate of Incorporation of KBW,
    Inc. (as further amended effective November 9, 2007).10
.1

Sublease between Keefe, Bruyette & Woods, Inc. and
    National Financial Partners Corp., dated as of August 31,
    2007 (incorporated by reference to Exhibit 10.1 to the
    Registrants current report on
    Form 8-K
    filed September 7, 2007).31
.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.  38