##### 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 September 30, 2008
 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
(State or Other Jurisdiction of Incorporation or Organization)
    
    13-4055775
(I.R.S. Employer Identification No.)
 787 Seventh Avenue, New York, New York 10019   Registrants telephone number: (212) 887-7777
 þ 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




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##### 



TABLE OF CONTENTS
  
 PageNumberAVAILABLE INFORMATION
    
    
    1PART I. FINANCIAL INFORMATION
    
    
    2ITEM 1. Financial Statements
    
    
    2Consolidated Statements of Financial Condition-September 30, 2008 (Unaudited) and December 31, 2007
    
    
    2Consolidated Statements of Operations-Three and Nine Months ended September 30, 2008 and 2007 (Unaudited)
    
    
    3Consolidated Statements of Changes in Stockholders Equity-Nine Months ended September 30, 2008 (Unaudited)
    
    
    4Consolidated Statements of Cash Flows-Nine Months ended September 30, 2008 and 2007 (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
    
    
    36ITEM 1. Legal Proceedings
    
    
    36ITEM 1A. Risk Factors
    
    
    37ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    48ITEM 3. Defaults Upon Senior Securities
    
    
    48ITEM 4. Submission of Matters to a Vote of Security Holders
    
    
    48ITEM 5. Other Information
    
    
    48ITEM 6. Exhibits
    
    
    48SIGNATURES
    
    
    49EXHIBIT INDEX
    
    
    50EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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AVAILABLE INFORMATION
    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 30,2008
    
    
    December 31,(unaudited)
    
    
    2007ASSETSCash and cash equivalents
    
    $
    177,241
    
    
    $
    194,358Financial instruments owned, at fair value:Equities
    
    
    60,853
    
    
    
    102,966Corporate and other debt
    
    
    86,097
    
    
    
    224,812US Government and agency securities
    
    
    9,972
    
    
    
    Mortgage backed securities
    
    
    14,839
    
    
    
    Other investments
    
    
    39,824
    
    
    
    54,515211,585
    
    
    
    382,293Securities purchased under resale agreements
    
    
    18,341
    
    
    
    23,846Receivables from clearing brokers
    
    
    139,162
    
    
    
    191,234Accounts receivable
    
    
    11,528
    
    
    
    21,196Furniture, equipment and leasehold improvements,
at cost, less accumulated depreciation and amortization
of $22,375 in 2008 and $19,259 in 2007
    
    
    18,994
    
    
    
    19,801Other assets
    
    
    62,110
    
    
    
    31,722Total assets
    
    $
    638,961
    
    
    $
    864,450LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Payable to clearing broker
    
    $
    1,785
    
    
    $
    Securities sold under repurchase agreements
    
    
    23,205
    
    
    
    94,784Short-term borrowings
    
    
    31,547
    
    
    
    65,099Financial instruments sold, not yet purchased, at fair value:Equities
    
    
    19,537
    
    
    
    48,061Corporate and other debt
    
    
    
    
    
    
    5,000U.S. Government and agency securities
    
    
    18,263
    
    
    
    23,78037,800
    
    
    
    76,841Accounts payable, accrued expenses, and other liabilities
    
    
    105,611
    
    
    
    172,263Income taxes payable
    
    
    10,386
    
    
    
    7,037Total liabilities
    
    
    210,334
    
    
    
    416,024Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    295
    
    
    
    293Paid-in capital
    
    
    135,888
    
    
    
    114,014Retained earnings
    
    
    297,131
    
    
    
    337,368Notes receivable from stockholders
    
    
    (2,225
    )
    
    
    (5,254
    )Accumulated other comprehensive (loss) / income
    
    
    (2,462
    )
    
    
    2,005Total stockholders equity
    
    
    428,627
    
    
    
    448,426Total liabilities and stockholders equity
    
    $
    638,961
    
    
    $
    864,450
  2




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KBW, INC. AND SUBSIDIARIES
 
 Consolidated Statements of Operations
 (Dollars in thousands, except per share information)
(unaudited)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Revenues:Investment banking
    
    $
    46,042
    
    
    $
    60,132
    
    
    $
    136,382
    
    
    $
    174,077Commissions
    
    
    54,527
    
    
    
    44,457
    
    
    
    152,894
    
    
    
    119,857Principal transactions, net
    
    
    (53,836
    )
    
    
    (14,943
    )
    
    
    (112,973
    )
    
    
    (3,134
    )Interest and dividend income
    
    
    5,891
    
    
    
    10,317
    
    
    
    20,351
    
    
    
    27,544Investment advisory fees
    
    
    222
    
    
    
    436
    
    
    
    815
    
    
    
    1,258Other
    
    
    789
    
    
    
    736
    
    
    
    2,189
    
    
    
    2,564Total revenues
    
    
    53,635
    
    
    
    101,135
    
    
    
    199,658
    
    
    
    322,166Expenses:Compensation and benefits
    
    
    60,318
    
    
    
    58,658
    
    
    
    177,251
    
    
    
    188,882Occupancy and equipment
    
    
    5,297
    
    
    
    4,922
    
    
    
    14,579
    
    
    
    13,977Communications and data processing
    
    
    7,290
    
    
    
    6,205
    
    
    
    20,632
    
    
    
    17,771Brokerage and clearance
    
    
    6,039
    
    
    
    6,361
    
    
    
    19,079
    
    
    
    17,417Interest
    
    
    871
    
    
    
    4,610
    
    
    
    4,115
    
    
    
    11,273Business development
    
    
    5,054
    
    
    
    5,105
    
    
    
    12,971
    
    
    
    12,300Other
    
    
    6,902
    
    
    
    5,412
    
    
    
    17,373
    
    
    
    18,317Total expenses
    
    
    91,771
    
    
    
    91,273
    
    
    
    266,000
    
    
    
    279,937(Loss) / income before income tax
(benefit) /expense
    
    
    (38,136
    )
    
    
    9,862
    
    
    
    (66,342
    )
    
    
    42,229Income tax (benefit) / expense
    
    
    (15,136
    )
    
    
    4,327
    
    
    
    (26,105
    )
    
    
    18,579Net (loss) / income
    
    $
    (23,000
    )
    
    $
    5,535
    
    
    $
    (40,237
    )
    
    $
    23,650Earnings per share:Basic
    
    $
    (0.75
    )
    
    $
    0.18
    
    
    $
    (1.31
    )
    
    $
    0.77Diluted
    
    $
    (0.75
    )
    
    $
    0.18
    
    
    $
    (1.31
    )
    
    $
    0.75Weighted average number
of common shares outstanding:Basic
    
    
    30,794,738
    
    
    
    30,665,945
    
    
    
    30,776,870
    
    
    
    30,636,898Diluted
    
    
    30,794,738
    
    
    
    31,546,276
    
    
    
    30,776,870
    
    
    
    31,537,188
  3




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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
    
    
    Income / (loss)
    
    
    EquityBalance at December 31, 2007
    
    $
    
    
    
    $
    293
    
    
    $
    114,014
    
    
    $
    337,368
    
    
    $
    (5,254
    )
    
    $
    2,005
    
    
    $
    448,426Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (40,237
    )
    
    
    
    
    
    
    
    
    
    
    (40,237
    )Other comprehensive
loss, currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,467
    )
    
    
    (4,467
    )Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    403,722Amortization of stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    24,648
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,648Purchase of 121,539 shares of
common stock
    
    
    
    
    
    
    (1
    )
    
    
    (2,966
    )
    
    
    
    
    
    
    60
    
    
    
    
    
    
    
    (2,907
    )Issuance of 292,724 shares of
common stock
    
    
    
    
    
    
    3
    
    
    
    7,119
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,122Restricted stock units
converted
    
    
    
    
    
    
    
    
    
    
    (854
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (854
    )Stock-based awards vested
    
    
    
    
    
    
    
    
    
    
    (6,193
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,193
    )Excess net tax benefit related
to stock-based awards
    
    
    
    
    
    
    
    
    
    
    120
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    120Repayment of notes
receivable from stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,969
    
    
    
    
    
    
    
    2,969Balance at September 30, 2008
    
    $
    
    
    
    $
    295
    
    
    $
    135,888
    
    
    $
    297,131
    
    
    $
    (2,225
    )
    
    $
    (2,462
    )
    
    $
    428,627
 Description of preferred stock and details:
 Number of SharesPar Value
    
    Authorized
    
    Issued
    
    OutstandingSeptember 30, 2008
    
    $
    0.01
    
    
    
    10,000,000
    
    
    
    
    
    
    
    December 31, 2007
    
    $
    0.01
    
    
    
    10,000,000
    
    
    
    
    
    
    
    
 Description of common stock and details:
 Number of SharesPar Value
    
    Authorized
    
    Issued(*)
    
    Outstanding(*)September 30, 2008
    
    $
    0.01
    
    
    
    140,000,000
    
    
    
    29,460,198
    
    
    
    29,460,198December 31, 2007
    
    $
    0.01
    
    
    
    140,000,000
    
    
    
    29,289,013
    
    
    
    29,289,013
 
 (*)
    
    These share 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 30,2008
    
    
    2007Cash flows from operating activities:Net (loss) / income
    
    $
    (40,237
    )
    
    $
    23,650Adjustments to reconcile net (loss) / income to net cash (used in) /
provided by operating activities:Amortization of stock-based compensation
    
    
    24,648
    
    
    
    15,923Depreciation and amortization
    
    
    3,603
    
    
    
    3,638Deferred income tax benefit
    
    
    (15,714
    )
    
    
    (14,249
    )Non-monetary transaction
    
    
    
    
    
    
    (6,518
    )(Increase) decrease in operating assets:Financial instruments owned, at fair value
    
    
    170,708
    
    
    
    (153,209
    )Securities purchased under resale agreements
    
    
    5,505
    
    
    
    13,866Receivables from clearing brokers
    
    
    52,072
    
    
    
    78,413Accounts receivable
    
    
    9,668
    
    
    
    3,986Other assets
    
    
    (14,674
    )
    
    
    (5,240
    )Increase (decrease) in operating liabilities:Financial instruments sold, not yet purchased, at fair value
    
    
    (39,041
    )
    
    
    (10,909
    )Securities sold under repurchase agreements
    
    
    (71,579
    )
    
    
    38,580Short-term borrowings
    
    
    (33,552
    )
    
    
    56,250Payable to clearing broker
    
    
    1,785
    
    
    
    1,135Accounts payable, accrued expenses and other liabilities
    
    
    (66,652
    )
    
    
    (33,004
    )Income taxes payable
    
    
    3,349
    
    
    
    (3,923
    )Net cash (used in) / provided by operating activities
    
    
    (10,111
    )
    
    
    8,389Cash flows from investing activities:Purchase of furniture, equipment and leasehold improvements
    
    
    (2,796
    )
    
    
    (2,224
    )Net cash used in investing activities
    
    
    (2,796
    )
    
    
    (2,224
    )Cash flows from financing activities:Issuance of shares of common stock
    
    
    75
    
    
    
    Purchases of shares of common stock
    
    
    (2,907
    )
    
    
    (1,965
    )Excess net tax benefit related to stock-based awards
    
    
    120
    
    
    
    1,204Repayment of notes receivable from stockholders
    
    
    2,969
    
    
    
    3,384Net cash provided by financing activities
    
    
    257
    
    
    
    2,623Currency adjustment:Effect of exchange rate changes on cash
    
    
    (4,467
    )
    
    
    1,467Net (decrease) / increase in cash and cash equivalents
    
    
    (17,117
    )
    
    
    10,255Cash and cash equivalents at the beginning of the period
    
    
    194,358
    
    
    
    165,647Cash and cash equivalents at the end of the period
    
    $
    177,241
    
    
    $
    175,902Supplemental disclosures of cash flow information:Cash paid during the period for:Income taxes
    
    $
    1,138
    
    
    $
    39,811Interest
    
    $
    5,380
    
    
    $
    10,671
  5




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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
  (b) Use of Estimates
  (c) Cash and Cash Equivalents
  (d) Fair Value of Financial Instruments
 Fair Value Measurements
  6




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
  The Fair Value Option for Financial Assets
and Financial Liabilities AICPA Audit and Accounting Guide  Brokers And Dealers In Securities
 (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
  (h) Revenue Recognition
 Investment Banking
   7




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
  
    
    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) Securitization Activities
 Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities -a replacement of FASB Statement
No. 125
 (j) Stock-Based Compensation
  (k) Income Taxes
 .
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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
 (l) Earnings Per Share (EPS)
  (m) Foreign Currency Translation
  (n) 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.
   9




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
    Assets at Fair Value as of September 30, 2008
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments owned, at fair value:Equities
    
    $
    34,722
    
    
    $
    10,190
    
    
    $
    15,864
    
    
    $
    60,776Corporate and other debt
    
    
    
    
    
    
    40,607
    
    
    
    45,490
    
    
    
    86,097US Government and agency securities
    
    
    9,972
    
    
    
    
    
    
    
    
    
    
    
    9,972Mortgage backed securities
    
    
    
    
    
    
    14,839
    
    
    
    
    
    
    
    14,839Other investments
    
    
    
    
    
    
    
    
    
    
    39,824
    
    
    
    39,824Total non-derivative trading assets
    
    
    44,694
    
    
    
    65,636
    
    
    
    101,178
    
    
    
    211,508Derivative financial instruments
    
    
    77
    
    
    
    
    
    
    
    
    
    
    
    77Total financial instruments owned
    
    $
    44,771
    
    
    $
    65,636
    
    
    $
    101,178
    
    
    $
    211,585
 Liabilities at Fair Value as of September 30, 2008
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments sold, not yet
purchased, at fair value:Equities
    
    $
    19,223
    
    
    $
    
    
    
    $
    
    
    
    $
    19,223Corporate and other debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US Government and agency securities
    
    
    18,263
    
    
    
    
    
    
    
    
    
    
    
    18,263Total non-derivative trading liabiilties
    
    
    37,486
    
    
    
    
    
    
    
    
    
    
    
    37,486Derivative financial instruments
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    314Total financial instruments sold, not yet purchased
    
    $
    37,800
    
    
    $
    
    
    
    $
    
    
    
    $
    37,800
 10




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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, 2007
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments owned, at fair value:Equities
    
    $
    76,581
    
    
    $
    2,741
    
    
    $
    23,541
    
    
    $
    102,863Corporate and other debt
    
    
    
    
    
    
    131,052
    
    
    
    93,760
    
    
    
    224,812Other investments
    
    
    
    
    
    
    
    
    
    
    54,515
    
    
    
    54,515Total non-derivative trading assets
    
    
    76,581
    
    
    
    133,793
    
    
    
    171,816
    
    
    
    382,190Derivative financial instruments
    
    
    103
    
    
    
    
    
    
    
    
    
    
    
    103Total financial instruments owned
    
    $
    76,684
    
    
    $
    133,793
    
    
    $
    171,816
    
    
    $
    382,293
 Liabilities at Fair Value as of December 31, 2007
 Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments sold, but not yet purchased,
at fair value:Equities
    
    $
    47,983
    
    
    $
    
    
    
    $
    
    
    
    $
    47,983Corporate and other debt
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    5,000U.S. Government and agency securities
    
    
    23,780
    
    
    
    
    
    
    
    
    
    
    
    23,780Total non-derivative trading liabilities
    
    
    71,763
    
    
    
    5,000
    
    
    
    
    
    
    
    76,763Derivative financial instruments
    
    
    78
    
    
    
    
    
    
    
    
    
    
    
    78Total financial instruments sold, not yet
purchased
    
    $
    71,841
    
    
    $
    5,000
    
    
    $
    
    
    
    $
    76,841
    Level 3 Financial Assets
 Changes inunrealized gainsTotal gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    and (losses)and (losses)
    
    
    
    
    
    
    
    
    
    Balance as of
    
    included in earningsThree months ended
    
    Balance as of
    
    (realized and
    
    Purchases/
    
    Transfers in /
    
    September 30,
    
    related to assets stillSeptember 30, 2008
    
    June 30, 2008
    
    unrealized)
    
    (sales), net
    
    out of Level 3
    
    2008
    

held
at reporting dateNon-derivative trading assets
    
    $
    135,625
    
    
    
    ($34,918
    )
    
    $
    471
    
    
    $
    
    
    
    $
    101,178
    
    
    
    ($32,302
    )
 11




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##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 Changes inunrealized gainsand (losses)Total gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    included in earningsand (losses)
    
    
    
    
    
    
    
    
    
    Balance as of
    
    related to assets stillThree months ended
    
    Balance as of
    
    (realized and
    
    Purchases/
    
    Transfers in
    
    September 30,
    
    held at reportingSeptember 30, 2007
    
    June 30, 2007
    
    unrealized)
    
    (sales), net
    
    of Level 3
    
    2007
    
    dateNon-derivative trading assets
    
    $
    73,634
    
    
    
    ($6,312
    )
    
    $
    7,643
    
    
    $
    5,390
    
    
    $
    80,355
    
    
    
    ($6,312
    )
 Changes inunrealized gainsand (losses)Total gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    included in earningsBalance as of
    
    and (losses)
    
    
    
    
    
    
    
    
    
    Balance as of
    
    related to assets stillNine months ended
    
    December 31,
    
    (realized and
    
    Purchases/
    
    Transfers out
    
    September 30,
    
    held at reportingSeptember 30, 2008
    
    2007
    
    unrealized)
    
    (sales), net
    
    of Level 3
    
    2008
    
    dateNon-derivative trading assets
    
    $
    171,816
    
    
    
    ($65,435
    )
    

    $
    898
    
    
    
    ($6,101
    )
    
    $
    101,178
    
    
    
    ($61,520
    )
 Changes inunrealized gainsand (losses)Total gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    included inBalance as of
    
    and (losses)
    
    
    
    
    
    
    
    
    
    Balance as of
    
    earnings related toNine months ended
    
    December 31,
    
    (realized and
    
    Purchases/
    
    Transfers in
    
    September
    
    assets still held atSeptember 30, 2007
    
    2006
    
    unrealized)
    
    (sales), net
    
    of Level 3
    

30, 2007
    
    reporting dateNon-derivative trading assets
    
    $
    56,227
    
    
    
    ($3,104
    )
    
    $
    21,842
    
    
    $
    5,390
    
    
    $
    80,355
    
    
    
    ($6,202
    )
     (4) Short-Term Borrowings
  12




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##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 (5) Commitments and Contingencies
 (a) Leases
  (b) Litigation
   (c) Limited Partnership Commitments
  (6) Financial Instruments with Off-Balance-Sheet Risk
   (a) Broker-Dealer Activities
  13




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##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 (b) Derivative Financial Instruments
    Current
    
    Average
    
    End ofNotional
    
    Fair
    
    PeriodValue
    
    Value
    
    Fair ValueSeptember 30, 2008:Purchased options
    
    $
    1,975
    
    
    $
    580
    
    
    $
    77Written options
    
    $
    2,287
    
    
    $
    250
    
    
    $
    314Short futures contracts
    
    $
    
    
    
    
    
    
    
    
    December 31, 2007:Purchased options
    
    $
    1,110
    
    
    $
    101
    
    
    $
    103Written options
    
    $
    2,600
    
    
    $
    100
    
    
    $
    78Short futures contracts
    
    $
    3,923
    
    
    $
    
    
    
    $
    
 (7) Concentrations of Credit Risk
   (8) Notes Receivable from Stockholders
  (9) Stock-Based Compensation
   14




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##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
   (10) Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Numerator for basic and diluted EPS-net (loss) /
income
    
    $
    (23,000
    )
    
    $
    5,535
    
    
    $
    (40,237
    )
    
    $
    23,650Denominator for EPS  weighted average number of
common shares outstanding(*):Basic
    
    
    30,794,738
    
    
    
    30,665,945
    
    
    
    30,776,870
    
    
    
    30,636,898Effect of dilutive securities  restricted stock
    
    
    
    
    
    
    880,331
    
    
    
    
    
    
    
    900,290Diluted
    
    
    30,794,738
    
    
    
    31,546,276
    
    
    
    30,776,870
    
    
    
    31,537,188Earnings per common share(*):Basic
    
    $
    (0.75
    )
    
    $
    0.18
    
    
    $
    (1.31
    )
    
    $
    0.77Diluted
    
    $
    (0.75
    )
    
    $
    0.18
    
    
    $
    (1.31
    )
    
    $
    0.75
 
 (*)
    
    In accordance with SFAS No. 128, as a result of a net loss, basic and diluted common shares outstanding are
equal for the three and nine months ended September 30, 2008. (11) Income Taxes
  
    
    Gross unrecognized tax benefits, including interest were $8,545 as of January 1, 2008
and $9,463 as of September 30, 2008, 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 tax expenses. As of January 1,
2008 and September 30, 2008, total interest of $1,294 and $1,915, respectively, was
included in the gross 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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##### Table of Contents



KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 (12) Industry Segment Data
 Disclosures about Segments of an
Enterprise and Related Information
 (13) Recent Accounting Developments
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 (14) Net Capital Requirement
  September 30, 2008Net Capital
    
    $
    141,948Excess
    
    $
    138,480
  16




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##### 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




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Business Environment
       18




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##### Table of Contents



Results of Operations
 Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007
 Overview
     Three Months EndedSeptember 30,
    
    
    Period-to-Period2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(unaudited)Revenues:Investment banking
    
    $
    46,042
    
    
    $
    60,132
    
    
    $
    (14,090
    )
    
    
    (23.4
    )%Commissions
    
    
    54,527
    
    
    
    44,457
    
    
    
    10,070
    
    
    
    22.7Principal transactions, net
    
    
    (53,836
    )
    
    
    (14,943
    )
    
    
    (38,893
    )
    
    
    N/MInterest and dividend income
    
    
    5,891
    
    
    
    10,317
    
    
    
    (4,426
    )
    
    
    (42.9
    )Investment advisory fees
    
    
    222
    
    
    
    436
    
    
    
    (214
    )
    
    
    (49.1
    )Other
    
    
    789
    
    
    
    736
    
    
    
    53
    
    
    
    7.2Total revenues
    
    
    53,635
    
    
    
    101,135
    
    
    
    (47,500
    )
    
    
    (47.0
    )Expenses:Compensation and benefits
    
    
    60,318
    
    
    
    58,658
    
    
    
    1,660
    
    
    
    2.8Non-compensation expenses:Occupancy and equipment
    
    
    5,297
    
    
    
    4,922
    
    
    
    375
    
    
    
    7.6Communications and
data processing
    
    
    7,290
    
    
    
    6,205
    
    
    
    1,085
    
    
    
    17.5Brokerage and clearance
    
    
    6,039
    
    
    
    6,361
    
    
    
    (322
    )
    
    
    (5.1
    )Interest
    
    
    871
    
    
    
    4,610
    
    
    
    (3,739
    )
    
    
    (81.1
    )Business development
    
    
    5,054
    
    
    
    5,105
    
    
    
    (51
    )
    
    
    (1.0
    )Other
    
    
    6,902
    
    
    
    5,412
    
    
    
    1,490
    
    
    
    27.5Total non-compensation expenses
    
    
    31,453
    
    
    
    32,615
    
    
    
    (1,162
    )
    
    
    (3.6
    )Total expenses
    
    
    91,771
    
    
    
    91,273
    
    
    
    498
    
    
    
    0.5(Loss) / income before income tax (benefit) / expense
    
    
    (38,136
    )
    
    
    9,862
    
    
    
    (47,998
    )
    
    
    N/MIncome tax (benefit) / expense
    
    
    (15,136
    )
    
    
    4,327
    
    
    
    (19,463
    )
    
    
    N/MNet (loss) / income
    
    $
    (23,000
    )
    
    $
    5,535
    
    
    $
    (28,535
    )
    
    
    N/M
    %
 
 N/M=
    
    Not Meaningful 19




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##### Table of Contents



Three Month Non-GAAP Financial Measures
 Share-Based Payment,
    Three Months Ended September 30, 2008ReconciliationGAAP
    
    
    Amount
    
    
    Non-GAAPCompensation and benefits expense
    
    $
    60,318
    
    
    $
    (2,843
    ) (a)
    
    $
    57,475(Loss) / income before income tax (benefit) /
expense
    
    $
    (38,136
    )
    
    $
    2,843
    (a)
    
    $
    (35,293
    )Income tax (benefit) / expense
    
    $
    (15,136
    )
    
    $
    1,145
    (b)
    
    $
    (13,991
    )Net (loss) / income
    
    $
    (23,000
    )
    
    $
    1,698
    (c)
    
    $
    (21,302
    )Earnings per share (d):Basic
    
    $
    (0.75
    )
    
    $
    0.06
    
    
    $
    (0.69
    )Diluted
    
    $
    (0.75
    )
    
    $
    0.06
    
    
    $
    (0.69
    )Weighted average number of common
shares outstanding (d):Basic
    
    
    30,794,738
    
    
    
    
    (e)
    
    
    30,794,738Diluted
    
    
    30,794,738
    
    
    
    
    (e)
    
    
    30,794,738
 20




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##### Table of Contents



Three Month Non-GAAP Financial Measures (Continued)
 Three Months Ended September 30, 2007ReconciliationGAAP
    
    
    Amount
    
    
    Non-GAAPCompensation and benefits expense
    
    $
    58,658
    
    
    $
    (3,128
    ) (a)
    
    $
    55,530Income before income tax expense
    
    $
    9,862
    
    
    $
    3,128
    (a)
    
    $
    12,990Income tax expense
    
    $
    4,327
    
    
    $
    1,372
    (b)
    
    $
    5,699Net income
    
    $
    5,535
    
    
    $
    1,756
    (c)
    
    $
    7,291Earnings per share:Basic
    
    $
    0.18
    
    
    $
    0.06
    
    
    $
    0.24Diluted
    
    $
    0.18
    
    
    $
    0.05
    
    
    $
    0.23Weighted average number of common
shares outstanding:Basic
    
    
    30,665,945
    
    
    
    
    (e)
    
    
    30,665,945Diluted
    
    
    31,546,276
    
    
    
    
    (e)
    
    
    31,546,276
 
 (a)
    
    The non-GAAP adjustment represents the pre-tax expense with respect to the amortization of the
IPO restricted stock awards granted to employees in November 2006.(b)
    
    The non-GAAP adjustment with respect to income tax (benefit) / expense represents the elimination
of the tax (benefit) / expense 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)
    
    In accordance with Statement of Financial Accounting Standards No. 128, basic and diluted common
shares outstanding are equal for the quarter ended September 30, 2008.(e)
    
    Both the basic and diluted weighted average number of common shares outstanding were not adjusted.    Revenues
 Investment Banking
  21




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##### Table of Contents



Commissions
  Principal Transactions, Net
    Interest and Dividend Income
  Expenses
 Compensation and Benefits
  Communications and Data Processing
  22




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##### Table of Contents



Brokerage and Clearance
  Interest
  Other
  Income Tax Benefit / Expense
  Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 2007
 Overview
    23




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##### Table of Contents



For the Nine Months EndedSeptember 30,
    
    
    Period-to-Period2008
    
    
    2007
    
    
    $ Change
    
    
    % Change(unaudited)Revenues:Investment banking
    
    $
    136,382
    
    
    $
    174,077
    
    
    $
    (37,695
    )
    
    
    (21.7
    )%Commissions
    
    
    152,894
    
    
    
    119,857
    
    
    
    33,037
    
    
    
    27.6Principal transactions, net
    
    
    (112,973
    )
    
    
    (3,134
    )
    
    
    (109,839
    )
    
    
    N/MInterest and dividend income
    
    
    20,351
    
    
    
    27,544
    
    
    
    (7,193
    )
    
    
    (26.1
    )Investment advisory fees
    
    
    815
    
    
    
    1,258
    
    
    
    (443
    )
    
    
    (35.2
    )Other
    
    
    2,189
    
    
    
    2,564
    
    
    
    (375
    )
    
    
    (14.6
    )Total revenues
    
    
    199,658
    
    
    
    322,166
    
    
    
    (122,508
    )
    
    
    (38.0
    )Expenses:Compensation and benefits
    
    
    177,251
    
    
    
    188,882
    
    
    
    (11,631
    )
    
    
    (6.2
    )Non-compensation expenses:Occupancy and equipment
    
    
    14,579
    
    
    
    13,977
    
    
    
    602
    
    
    
    4.3Communications and
data processing
    
    
    20,632
    
    
    
    17,771
    
    
    
    2,861
    
    
    
    16.1Brokerage and clearance
    
    
    19,079
    
    
    
    17,417
    
    
    
    1,662
    
    
    
    9.5Interest
    
    
    4,115
    
    
    
    11,273
    
    
    
    (7,158
    )
    
    
    (63.5
    )Business development
    
    
    12,971
    
    
    
    12,300
    
    
    
    671
    
    
    
    5.5Other
    
    
    17,373
    
    
    
    18,317
    
    
    
    (944
    )
    
    
    (5.2
    )Total non-compensation expenses
    
    
    88,749
    
    
    
    91,055
    
    
    
    (2,306
    )
    
    
    (2.5
    )Total expenses
    
    
    266,000
    
    
    
    279,937
    
    
    
    (13,937
    )
    
    
    (5.0
    )(Loss) / income before income tax
(benefit) / expense
    
    
    (66,342
    )
    
    
    42,229
    
    
    
    (108,571
    )
    
    
    N/MIncome tax (benefit) / expense
    
    
    (26,105
    )
    
    
    18,579
    
    
    
    (44,684
    )
    
    
    N/MNet (loss) / income
    
    $
    (40,237
    )
    
    $
    23,650
    
    
    $
    (63,887
    )
    
    
    N/M
    %
 
 N/M=Not Meaningful Nine Month Non-GAAP Financial Measures
   24




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Nine
Month Non-GAAP Financial Measures (Continued)
 Nine Months Ended September 30, 2008ReconciliationGAAP
    
    
    Amount
    
    
    Non-GAAPCompensation and benefits expense
    
    $
    177,251
    
    
    $
    (8,389
    ) (a)
    
    $
    168,862(Loss) /
income before income tax (benefit) / expense
    
    $
    (66,342
    )
    
    $
    8,389
    (a)
    
    $
    (57,953
    )Income tax (benefit) / expense
    
    $
    (26,105
    )
    
    $
    3,301
    (b)
    
    $
    (22,804
    )Net (loss) / income
    
    $
    (40,237
    )
    
    $
    5,088
    (c)
    
    $
    (35,149
    )Earnings per share (d):Basic
    
    $
    (1.31
    )
    
    $
    0.17
    
    
    $
    (1.14
    )Diluted
    
    $
    (1.31
    )
    
    $
    0.17
    
    
    $
    (1.14
    )Weighted average number of common
shares outstanding (d):Basic
    
    
    30,776,870
    
    
    
    
    (e)
    
    
    30,776,870Diluted
    
    
    30,776,870
    
    
    
    
    (e)
    
    
    30,776,870
 Nine Months Ended September 30, 2007ReconciliationGAAP
    
    
    Amount
    
    
    Non-GAAPCompensation and benefits expense
    
    $
    188,882
    
    
    $
    (9,290
    ) (a)
    
    $
    179,592Income before income tax expense
    
    $
    42,229
    
    
    $
    9,290
    (a)
    
    $
    51,519Income tax expense
    
    $
    18,579
    
    
    $
    4,088
    (b)
    
    $
    22,667Net income
    
    $
    23,650
    
    
    $
    5,202
    (c)
    
    $
    28,852Earnings per share:Basic
    
    $
    0.77
    
    
    $
    0.17
    
    
    $
    0.94Diluted
    
    $
    0.75
    
    
    $
    0.16
    
    
    $
    0.91Weighted average number of common
shares outstanding:Basic
    
    
    30,636,898
    
    
    
    
    (e)
    
    
    30,636,898Diluted
    
    
    31,537,188
    
    
    
    
    (e)
    
    
    31,537,188
 
 (a)
    
    The non-GAAP adjustment represents the pre-tax expense with respect to the amortization of the
IPO restricted stock awards granted to employees in November 2006.(b)
    
    The non-GAAP adjustment with respect to income tax (benefit) / expense represents the elimination
of the tax (benefit) / expense 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)
    
    In accordance with Statement of Financial Accounting Standards No. 128, basic and diluted common
shares outstanding are equal for the nine months ended September 30, 2008.(e)
    
    Both the basic and diluted weighted average number of common shares outstanding were not adjusted.  25




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##### Table of Contents



Revenues
 Investment Banking
  Commissions
  Principal Transactions, Net
  Interest and Dividend Income
  Expenses
 Compensation and Benefits
  26




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##### Table of Contents



Communications and Data Processing
  Brokerage and Clearance
  Interest
  Business Development
  Other
  Income Tax Benefit / Expense
  27




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##### Table of Contents



Critical Accounting Policies and Estimates
    Fair Value of Financial Instruments
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities AICPA Audit and Accounting Guide
- Brokers And Dealers In Securities
   Fair Value Hierarchy
  28




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##### Table of Contents



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.
          29




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##### 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,
 Contractual Obligations
  Off-Balance Sheet Arrangements
   30




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##### Table of Contents



Recently Issued Accounting Standards, Not Yet Adopted
 Disclosures about Derivative Instruments and
Hedging Activities  an amendment of FASB Statement No. 133
 Liquidity and Capital Resources
   .
       31




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##### Table of Contents



Cash Flows
 Nine months ended September 30, 2008 .
   Nine months ended September 30, 2007 .
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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk
     High
    
    Low
    
    Average(dollars in thousands)Long Value:Equities
    
    $
    102,941
    
    
    $
    59,822
    
    
    $
    79,490Corporate and other debt
    
    $
    235,444
    
    
    $
    86,097
    
    
    $
    169,366U.S. Government and agency securities
    
    $
    9,972
    
    
    $
    
    
    
    $
    1,166Mortgage backed securities
    
    $
    14,839
    
    
    $
    
    
    
    $
    1,484Other investments
    
    $
    54,540
    
    
    $
    39,254
    
    
    $
    47,914Short Value:
    
    
    
    
    
    
    
    
    
    $Equities
    
    $
    48,061
    
    
    $
    19,535
    
    
    $
    36,269Corporate and other debt
    
    $
    7,034
    
    
    $
    
    
    
    $
    1,976U.S. Government and agency securities
    
    $
    23,780
    
    
    $
    
    
    
    $
    5,961
 Interest Rate Risk
  Credit Risk
  Inflation Risk
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Operational Risk
  34




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ITEM 4. Controls and Procedures
    35




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PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
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ITEM 1A. Risk Factors
  Risks Related to Our Business
 Difficult market conditions have adversely affected the financial services industry, which is the
industry on which we focus.
   
    
    The number of M&A transactions where we act as adviser could be adversely affected by
continued uncertainties in valuations related to asset quality and creditworthiness,
volatility in the equity markets and diminished access to financing. Also, these
conditions could increase the execution risk in M&A transactions where we act as an
adviser.
    
    Our opportunity to act as underwriter or placement agent in equity and debt offerings
could be adversely affected by competing government sources of equity or by volatile
equity or debt markets.
    
    We may experience losses in securities trading activities or as a result of write
downs in the value of securities that we own as a result of deteriorations in the
businesses or creditworthiness of the issuers of such securities.
    
    We may incur unexpected costs or losses as a result of the bankruptcy or other
failure of companies for which we have performed investment banking services to honor
ongoing obligations such as indemnification or expense reimbursement agreements.
    
    Our plans for international expansion, in particular through our UK subsidiary, may
not be realized in the current environment.
    
    Competition in our investment banking, sales and trading businesses could intensify
as a result of the increasing pressures on financial services companies.
    
    Our industry could face increased regulation as a result of legislative or regulatory
initiatives, and the responsibilities of the SEC and other federal agencies may be
reallocated.
    
    Government intervention may not succeed in stabilizing the financial and credit
markets and may have negative consequences for our business.
 Current and future government intervention in the financial and credit markets may alter the
industry and have negative consequences for our business and may diminish the opportunities
available to us.
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Lack of sufficient liquidity or access to capital could impair our business and financial
condition.
  Fair value issues will present continuing challenges.
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The soundness of other financial institutions could adversely affect us.
  Our risk management policies and procedures may leave us exposed to unidentified or unanticipated
risks.
 .
 Committing our own capital in our underwriting, trading and other businesses increases the
potential for significant losses.
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Our ability to retain our professionals is critical to the success of our business, and our failure
to do so may materially adversely affect our reputation, business and results of operations.
  We face strong competition, including from entities with significantly more financial and other
resources.
    The impact of the current market and regulatory environment on trading customers may adversely
affect our sales and trading commission revenues.
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Pricing and other competitive pressures may impair the revenues and profitability of our sales and
trading business.
    Our capital markets and strategic advisory engagements are singular in nature and do not generally
provide for subsequent engagements.
  Our operations and infrastructure may malfunction or fail.
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We may be adversely affected by changes in services and products provided by third parties and
increases in related costs.
  Our financial results may fluctuate substantially from period to period, which may impair our stock
price.
  Poor investment performance may reduce revenues and profitability of our asset management
operations.
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Strategic investments, acquisitions, entry into new businesses and joint ventures may result in
additional risks and uncertainties in our business.
    Growth of our business could result in increased costs.
   Investments by our directors, officers, employees and our employee profit sharing retirement plan
may conflict with the interests of our stockholders.
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Our policies and procedures may limit the investment opportunities for our company.
  We are a holding company and depend on our subsidiaries for dividends, distributions and other
payments.
  Our broker-dealer subsidiaries are subject to regulatory net capital requirements.
  Risks Related to Our Industry
 Risks associated with regulatory impact on capital markets.
  Financial services firms have been subject to increased scrutiny over the last several years,
increasing the risk of financial liability and reputational harm resulting from adverse regulatory
actions.
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Our exposure to legal liability is significant, and damages that we may be required to pay and the
reputational harm that could result from legal or regulatory action against us could materially
adversely affect our businesses.
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Risks Related to Our Shares
 The SECs emergency order banning the effecting of short sales in our stock has expired and our
stock price could be negatively impacted.
  We are controlled by our employee stockholders whose interests may differ from those of other
stockholders.
  Provisions of our organizational documents may discourage an acquisition of our company.
  Future sales, or the possibility of future sales, of a substantial amount of our common stock could
cause our stock price to decline.
  We do not expect to pay any cash dividends in the foreseeable future.
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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 ProgramsJuly 1, 2008 to July 31, 2008
    
    
    5,610
    
    
    $
    17.58
    
    
    
    
    
    
    
    August 1, 2008 to August 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2008 to September
30, 2008
    
    
    402
    
    
    $
    31.62
    
    
    
    
    
    
    
    Total
    
    
    6,012
    
    
    $
    18.52
    
    
    
    
    
    
    
    
 
 (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
 None.
 
 ITEM 4. Submission of Matters to a Vote of Security Holders
 None.
 
 ITEM 5. Other Information
 None.
 
 ITEM 6. Exhibits
 See Exhibit Index.
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KBW, INC.By:
    /s/ JOHN G. DUFFYName:
    John G. DuffyTitle:
    Chairman and Chief Executive OfficerBy:
    /s/ ROBERT GIAMBRONEName:
    Robert GiambroneTitle:
    Chief Financial Officer 49




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ExhibitNumber
    
    Description3.2
    
    Second Amended and Restated Bylaws of KBW, Inc. (incorporated by
reference to Exhibit 3.2 to the Registrants current report on
Form 8-K filed October 22, 2008).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.
 50