##### Table of Contents



UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number: 001-33138
 KBW, INC.
  Delaware
(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
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
  o þ




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##### 



TABLE OF CONTENTS
 PageNumberAVAILABLE INFORMATION
    
    1PART I. FINANCIAL INFORMATION
    
    2ITEM 1. Financial Statements
    
    2Consolidated Statements of Financial Condition-September 30, 2009 (Unaudited) and December 31, 2008
    
    2Consolidated Statements of Operations-Three and Nine Months ended September 30, 2009 and 2008 (Unaudited)
    
    3Consolidated Statement of Changes in Stockholders Equity-Nine Months ended September 30, 2009 (Unaudited)
    
    4Consolidated Statements of Cash Flows-Nine Months ended September 30, 2009 and 2008 (Unaudited)
    
    5Notes to Consolidated Financial Statements
    
    6ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    20ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
    
    36ITEM 4. Controls and Procedures
    
    37PART II. OTHER INFORMATION
    
    38ITEM 1. Legal Proceedings
    
    38ITEM 1A. Risk Factors
    
    38ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    38ITEM 3. Defaults Upon Senior Securities
    
    38ITEM 4. Submission of Matters to a Vote of Security Holders
    
    39ITEM 5. Other Information
    
    39ITEM 6. Exhibits
    
    39SIGNATURES
    
    40EXHIBIT INDEX
    
    41EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATIONEX-10.1EX-10.2EX-10.3EX-31.1EX-31.2EX-32.1EX-32.2




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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 30,2009
    
    
    December 31,(unaudited)
    
    
    2008ASSETSCash and cash equivalents
    
    $
    179,838
    
    
    $
    194,981Financial instruments owned, at fair value:Equities
    
    
    79,738
    
    
    
    41,765Corporate and other debt
    
    
    63,463
    
    
    
    53,879Mortgage-backed securities
    
    
    4,570
    
    
    
    Other investments
    
    
    40,302
    
    
    
    34,893188,073
    
    
    
    130,537Receivables from clearing brokers
    
    
    173,000
    
    
    
    130,682Accounts receivable
    
    
    24,156
    
    
    
    19,391Income taxes receivable
    
    
    1,942
    
    
    
    33,270Furniture, equipment and leasehold improvements,
at cost, less accumulated depreciation and amortization
of $25,270 in 2009 and $21,546 in 2008
    
    
    18,860
    
    
    
    18,895Other assets
    
    
    48,124
    
    
    
    43,710Total assets
    
    $
    633,993
    
    
    $
    571,466LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Financial instruments sold, not yet purchased, at fair value:Equities
    
    $
    34,463
    
    
    $
    11,162Corporate debt
    
    
    1,166
    
    
    
    U.S. Government and agency securities
    
    
    2,895
    
    
    
    38,524
    
    
    
    11,162Short-term borrowings
    
    
    
    
    
    
    31,547Accounts payable, accrued expenses, and other liabilities
    
    
    131,869
    
    
    
    122,070Income taxes payable
    
    
    20,557
    
    
    
    9,956Total liabilities
    
    
    190,950
    
    
    
    174,735Stockholders equity:Preferred stock
    
    
    
    
    
    
    Common stock
    
    
    303
    
    
    
    298Paid-in capital
    
    
    159,368
    
    
    
    137,618Retained earnings
    
    
    294,856
    
    
    
    275,019Notes receivable from stockholders
    
    
    (609
    )
    
    
    (2,225
    )Accumulated other comprehensive loss
    
    
    (10,875
    )
    
    
    (13,979
    )Total stockholders equity
    
    
    443,043
    
    
    
    396,731Total liabilities and stockholders equity
    
    $
    633,993
    
    
    $
    571,466
  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 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Investment banking
    
    $
    57,785
    
    
    $
    46,042
    
    
    $
    126,958
    
    
    $
    136,382Commissions
    
    
    36,595
    
    
    
    54,527
    
    
    
    108,466
    
    
    
    152,894Principal transactions, net
    
    
    23,675
    
    
    
    (53,836
    )
    
    
    51,371
    
    
    
    (112,973
    )Interest and dividend income
    
    
    2,655
    
    
    
    5,891
    
    
    
    6,430
    
    
    
    20,351Investment advisory fees
    
    
    341
    
    
    
    222
    
    
    
    974
    
    
    
    815Other
    
    
    1,588
    
    
    
    789
    
    
    
    5,812
    
    
    
    2,189Total revenues
    
    
    122,639
    
    
    
    53,635
    
    
    
    300,011
    
    
    
    199,658Expenses:Compensation and benefits
    
    
    73,819
    
    
    
    60,318
    
    
    
    184,965
    
    
    
    177,251Occupancy and equipment
    
    
    5,567
    
    
    
    5,297
    
    
    
    16,168
    
    
    
    14,579Communications and data processing
    
    
    7,399
    
    
    
    7,290
    
    
    
    21,301
    
    
    
    20,632Brokerage and clearance
    
    
    4,939
    
    
    
    6,039
    
    
    
    12,423
    
    
    
    19,079Business development
    
    
    4,427
    
    
    
    5,054
    
    
    
    10,672
    
    
    
    12,971Interest
    
    
    135
    
    
    
    871
    
    
    
    361
    
    
    
    4,115Other
    
    
    4,829
    
    
    
    6,902
    
    
    
    17,058
    
    
    
    17,373Total expenses
    
    
    101,115
    
    
    
    91,771
    
    
    
    262,948
    
    
    
    266,000Income / (loss) before income taxes
    
    
    21,524
    
    
    
    (38,136
    )
    
    
    37,063
    
    
    
    (66,342
    )Income tax expense / (benefit)
    
    
    9,630
    
    
    
    (15,136
    )
    
    
    17,226
    
    
    
    (26,105
    )Net income / (loss)
    
    $
    11,894
    
    
    $
    (23,000
    )
    
    $
    19,837
    
    
    $
    (40,237
    )Earnings per common share:Basic (Note 10)
    
    $
    0.33
    
    
    $
    (0.75
    )
    
    $
    0.55
    
    
    $
    (1.31
    )Diluted (Note 10)
    
    $
    0.33
    
    
    $
    (0.75
    )
    
    $
    0.55
    
    
    $
    (1.31
    )Weighted average number
of common shares outstanding:Basic
    
    
    31,410,337
    
    
    
    30,794,738
    
    
    
    31,390,229
    
    
    
    30,776,870Diluted
    
    
    31,410,337
    
    
    
    30,794,738
    
    
    
    31,390,229
    
    
    
    30,776,870
  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
    
    
    (Loss) / Income
    
    
    EquityBalance at December 31,
2008
    
    $
    
    
    
    $
    298
    
    
    $
    137,618
    
    
    $
    275,019
    
    
    $
    (2,225
    )
    
    $
    (13,979
    )
    
    $
    396,731Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,837
    
    
    
    
    
    
    
    
    
    
    
    19,837Other comprehensive
income, currency
translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,104
    
    
    
    3,104Total comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,941Amortization of
stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    28,512
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,512Cancellation of 304,564
shares of restricted
stock in
satisfaction of
withholding
tax requirements
    
    
    
    
    
    
    (3
    )
    
    
    (6,761
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,764
    )Issuance of 779,195
shares of
common stock
    
    
    
    
    
    
    8
    
    
    
    17,039
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,047Restricted stock units
converted
    
    
    
    
    
    
    
    
    
    
    (2,939
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,939
    )Stock-based awards vested
    
    
    
    
    
    
    
    
    
    
    (13,952
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,952
    )Tax shortfall related to
stock-based awards
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149
    )Repayment of notes
receivable from
stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,616
    
    
    
    
    
    
    
    1,616Balance at September 30,
2009
    
    $
    
    
    
    $
    303
    
    
    $
    159,368
    
    
    $
    294,856
    
    
    $
    (609
    )
    
    $
    (10,875
    )
    
    $
    443,043
 Description of preferred stock and details:
 Number of SharesPar Value
    
    
    Authorized
    
    
    Issued
    
    
    OutstandingSeptember 30, 2009
    
    $
    0.01
    
    
    
    10,000,000
    
    
    
    
    
    
    
    December 31, 2008
    
    $
    0.01
    
    
    
    10,000,000
    
    
    
    
    
    
    
    
 Description of common stock and details:
 Number of SharesPar Value
    
    
    Authorized
    
    
    Issued(*)
    
    
    Outstanding(*)September 30, 2009
    
    $
    0.01
    
    
    
    140,000,000
    
    
    
    30,308,447
    
    
    
    30,308,447December 31, 2008
    
    $
    0.01
    
    
    
    140,000,000
    
    
    
    29,833,816
    
    
    
    29,833,816
 
 (*)
    
    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 30,2009
    
    
    2008Cash flows from operating activities:Net income / (loss)
    
    $
    19,837
    
    
    $
    (40,237
    )Adjustments to reconcile net income / (loss) to net cash used inoperating activities:Amortization of stock-based compensation
    
    
    28,512
    
    
    
    24,648Depreciation and amortization
    
    
    3,639
    
    
    
    3,603Deferred income tax benefit
    
    
    (941
    )
    
    
    (15,714
    )(Increase) decrease in operating assets:Financial instruments owned, at fair value
    
    
    (57,113
    )
    
    
    170,708Securities purchased under resale agreements
    
    
    
    
    
    
    5,505Receivables from clearing brokers
    
    
    (42,050
    )
    
    
    52,072Accounts receivable
    
    
    (4,480
    )
    
    
    9,668Income taxes receivable
    
    
    31,328
    
    
    
    Other assets
    
    
    (3,415
    )
    
    
    (14,674
    )Increase (decrease) in operating liabilities:Financial instruments sold, not yet purchased, at fair value
    
    
    27,294
    
    
    
    (39,041
    )Securities sold under repurchase agreements
    
    
    
    
    
    
    (71,579
    )Payable to clearing broker
    
    
    
    
    
    
    1,785Short-term borrowings
    
    
    (31,547
    )
    
    
    (33,552
    )Accounts payable, accrued expenses and other liabilities
    
    
    8,414
    
    
    
    (66,652
    )Income taxes payable
    
    
    10,597
    
    
    
    3,349Net cash used in operating activities
    
    
    (9,925
    )
    
    
    (10,111
    )Cash flows from investing activities:Purchase of furniture, equipment and leasehold improvements
    
    
    (3,603
    )
    
    
    (2,796
    )Net cash used in investing activities
    
    
    (3,603
    )
    
    
    (2,796
    )Cash flows from financing activities:Issuance of shares of common stock
    
    
    156
    
    
    
    75Cancellation of restricted stock in satisfaction of withholding
tax
    
    
    (6,764
    )
    
    
    (2,907
    )Excess (shortfall) net tax benefit related to stock-based awards
    
    
    (149
    )
    
    
    120Repayment of notes receivable from stockholders
    
    
    1,616
    
    
    
    2,969Net cash (used in) / provided by financing activities
    
    
    (5,141
    )
    
    
    257Currency adjustment:Effect of exchange rate changes on cash
    
    
    3,526
    
    
    
    (4,467
    )Net decrease in cash and cash equivalents
    
    
    (15,143
    )
    
    
    (17,117
    )Cash and cash equivalents at the beginning of period
    
    
    194,981
    
    
    
    194,358Cash and cash equivalents at the end of period
    
    $
    179,838
    
    
    $
    177,241Supplemental disclosures of cash flow information:Cash paid during the period for:Income taxes
    
    $
    11,967
    
    
    $
    1,138Interest
    
    $
    472
    
    
    $
    5,380
  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) Financial Accounting Standards Board (FASB) Accounting Standards Codification
 The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles ( .
   (b) Principles of Consolidation
  Consolidation
  6




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollars in thousands, except per share information)
 (c) Use of Estimates
  (d) Cash and Cash Equivalents
  (e) Fair Value of Financial Instruments
 Fair Value Measurements and Disclosures
  Financial Instruments AICPA Audit and Accounting Guide  Brokers And
Dealers In Securities
 (f) Securities Purchased Under Resale Agreements and Securities Sold Under Repurchase
Agreements
   7




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




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 Investment advisory fees
  (j) Stock-Based Compensation
  (k) Income Taxes
  Income Taxes .
 (l) Earnings Per Common Share (EPS)
  Earnings Per Share
 (m) Foreign Currency Translation
  (3) Financial Instruments
  9




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
  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)
(unaudited)
(Dollars in thousands, except per share information)
  Assets at Fair Value as of September 30, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments owned, at fair value:Equities
    
    $
    62,828
    
    
    $
    1,206
    
    
    $
    15,454
    
    
    $
    79,488Corporate and other debt:Corporate debt
    
    
    9,963
    
    
    
    12,228
    
    
    
    10,501
    
    
    
    32,692CDOs
    
    
    
    
    
    
    5,404
    
    
    
    1
    
    
    
    5,405Other debt obligations(1)
    
    
    
    
    
    
    
    
    
    
    25,366
    
    
    
    25,366Total corporate and other debt
    
    
    9,963
    
    
    
    17,632
    
    
    
    35,868
    
    
    
    63,463Mortgage-backed securities  residential
    
    
    
    
    
    
    4,570
    
    
    
    
    
    
    
    4,570Other investments(2)
    
    
    
    
    
    
    
    
    
    
    40,302
    
    
    
    40,302Total non-derivative trading assets
    
    
    72,791
    
    
    
    23,408
    
    
    
    91,624
    
    
    
    187,823Derivative financial instruments
    
    
    250
    
    
    
    
    
    
    
    
    
    
    
    250Total financial instruments owned
    
    $
    73,041
    
    
    $
    23,408
    
    
    $
    91,624
    
    
    $
    188,073
 
 (1)
    
    Principally consists of bank and insurance company trust
preferred and capital securities.(2)
    
    Principally consists of limited and general partnership interests. Liabilities at Fair Value as of September 30, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments sold, not yet
purchased, at fair value:Equities
    
    $
    34,031
    
    
    $
    
    
    
    $
    
    
    
    $
    34,031Corporate debt
    
    
    30
    
    
    
    1,136
    
    
    
    
    
    
    
    1,166US Government and agency securities
    
    
    2,895
    
    
    
    
    
    
    
    
    
    
    
    2,895Total non-derivative trading liabiilties
    
    
    36,956
    
    
    
    1,136
    
    
    
    
    
    
    
    38,092Derivative financial instruments
    
    
    432
    
    
    
    
    
    
    
    
    
    
    
    432Total financial instruments sold, not yet purchased
    
    $
    37,388
    
    
    $
    1,136
    
    
    $
    
    
    
    $
    38,524
 11




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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, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments owned, at fair value:Equities
    
    $
    19,169
    
    
    $
    7,031
    
    
    $
    14,722
    
    
    $
    40,922Corporate and other debt
    
    
    
    
    
    
    21,191
    
    
    
    32,688
    
    
    
    53,879Other investments
    
    
    
    
    
    
    
    
    
    
    34,893
    
    
    
    34,893Total non-derivative trading assets
    
    
    19,169
    
    
    
    28,222
    
    
    
    82,303
    
    
    
    129,694Derivative financial instruments
    
    
    843
    
    
    
    
    
    
    
    
    
    
    
    843Total financial instruments owned
    
    $
    20,012
    
    
    $
    28,222
    
    
    $
    82,303
    
    
    $
    130,537
 Liabilities at Fair Value as of December 31, 2008Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalFinancial instruments sold, but not yet
purchased,
at fair value:Equities
    
    $
    10,701
    
    
    $
    
    
    
    $
    
    
    
    $
    10,701Total non-derivative trading liabilities
    
    
    10,701
    
    
    
    
    
    
    
    
    
    
    
    10,701Derivative financial instruments
    
    
    461
    
    
    
    
    
    
    
    
    
    
    
    461Total financial instruments sold, not yet
purchased
    
    $
    11,162
    
    
    $
    
    
    
    $
    
    
    
    $
    11,162
   12




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
  Level 3 Financial Assets
 Changes inunrealized gainsand (losses)included inTotal gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    earnings relatedand (losses)
    
    
    
    
    
    
    Transfers
    
    
    Balance as of
    
    
    to assets stillThree months ended
    
    Balance as of
    
    
    (realized and
    
    
    Purchases/
    
    
    in/out of
    
    
    September 30,
    
    
    held at reportingSeptember 30, 2009
    
    June 30, 2009
    
    
    unrealized)
    
    
    (sales), net
    
    
    Level 3
    
    
    2009
    
    
    dateEquities
    
    $
    15,247
    
    
    $
    207
    
    
    $
    
    
    
    $
    
    
    
    $
    15,454
    
    
    $
    207Corporate and other debt:Corporate debt
    
    
    501
    
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    10,501
    
    
    
    (2
    )CDOs
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    Other debt obligations
    
    
    25,359
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    25,366
    
    
    
    6Total coporate and other debt
    
    
    25,861
    
    
    
    7
    
    
    
    10,000
    
    
    
    
    
    
    
    35,868
    
    
    
    4Other investments
    
    
    37,034
    
    
    
    2,071
    
    
    
    1,197
    
    
    
    
    
    
    
    40,302
    
    
    
    2,071Total Level 3 Financial Assets
    
    $
    78,142
    
    
    $
    2,285
    
    
    $
    11,197
    
    
    $
    
    
    
    
    91,624
    
    
    
    2,282
 Changes inunrealized gainsand (losses)included inearnings relatedTotal gains and
    
    
    
    
    
    
    
    
    
    
    Balance as of
    
    
    to assets still heldThree months ended
    
    Balance as of
    
    
    (losses) (realized
    
    
    Purchases/
    
    
    Transfers
    
    
    September 30,
    
    
    at reportingSeptember 30, 2008
    
    June 30, 2008
    
    
    and unrealized)
    
    
    (sales), net
    
    
    in/out of Level 3
    
    
    2008
    
    
    dateNon-derivative trading assets
    
    $
    135,625
    
    
    $
    (34,918
    )
    
    $
    471
    
    
    $
    
    
    
    $
    101,178
    
    
    $
    (32,302
    )
 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)
 Changes inunrealized gainsand (losses)Total gains
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    included inBalance as of
    
    
    and (losses)
    
    
    
    
    
    
    Transfers
    
    
    
    
    
    
    earnings relatedNine months ended
    
    December 31,
    
    
    (realized
    
    
    Purchases/
    
    
    in/out of
    
    
    Balance as of
    
    
    to assets still heldSeptember 30, 2009
    
    2008
    
    
    and unrealized)
    
    
    (sales), net
    
    
    Level 3
    
    
    September 30, 2009
    
    
    at reporting dateEquities
    
    $
    14,722
    
    
    $
    (32
    )
    
    $
    
    
    
    $
    764
    
    
    $
    15,454
    
    
    $
    (32
    )Corporate and other debt:Corporate debt
    
    
    1,581
    
    
    
    (1,080
    )
    
    
    10,000
    
    
    
    
    
    
    
    10,501
    
    
    
    (1,081
    )CDOs
    
    
    44
    
    
    
    2
    
    
    
    (45
    )
    
    
    
    
    
    
    1
    
    
    
    (26
    )Other debt obligations
    
    
    31,063
    
    
    
    (53
    )
    
    
    (5,644
    )
    
    
    
    
    
    
    25,366
    
    
    
    4,447Total corporate and other debt
    
    
    32,688
    
    
    
    (1,131
    )
    
    
    4,311
    
    
    
    
    
    
    
    35,868
    
    
    
    3,340Other investments
    
    
    34,893
    
    
    
    3,191
    
    
    
    2,218
    
    
    
    
    
    
    
    40,302
    
    
    
    3,104Total Level 3 Financial Assets
    
    $
    82,303
    
    
    $
    2,028
    
    
    $
    6,529
    
    
    $
    764
    
    
    $
    91,624
    
    
    $
    6,412
 Changes inunrealized gainsand (losses)included inTotal gains and
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    earnings related toNine months ended
    
    Balance as of
    
    
    (losses) (realized
    
    
    Purchases/ (sales),
    
    
    Transfers in/out of
    
    
    Balance as of
    
    
    assets still heldSeptember 30, 2008
    
    December 31, 2007
    
    
    and unrealized)
    
    
    net
    
    
    Level 3
    
    
    September 30, 2008
    
    
    at reporting dateNon-derivative trading assets
    
    $
    171,816
    
    
    $
    (65,435
    )
    
    $
    898
    
    
    $
    (6,101
    )
    
    $
    101,178
    
    
    $
    (61,520
    )
     (4) Short-Term Borrowings
  14




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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) Litigatio n
 Contingencies
    (c) Limited Partnership Commitments
  (6) Financial Instruments with Off-Balance-Sheet Risk
  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)
  (a) Broker-Dealer Activities
  (b) Derivative Financial Instruments
    Current
    
    Average
    
    End ofNotional
    
    Fair
    
    PeriodValue
    
    Value
    
    Fair ValueSeptember 30, 2009:Purchased options
    
    $
    9,832
    
    
    $
    362
    
    
    $
    250Written options
    
    $
    5,596
    
    
    $
    651
    
    
    $
    432Short futures contracts
    
    $
    6,639
    
    
    $
    
    
    
    $
    December 31, 2008:Purchased options
    
    $
    7,721
    
    
    $
    557
    
    
    $
    843Written options
    
    $
    6,100
    
    
    $
    344
    
    
    $
    461Short futures contracts
    
    $
    
    
    
    $
    
    
    
    $
    
  Three Months Ended
    
    
    Nine Months EndedType of Instrument
    
    September 30, 2009
    
    
    September 30, 2009Equities
    
    $
    6,427
    
    
    $
    12,126Corporate and other debt
    
    
    10,085
    
    
    
    21,154Mortgage-backed securities
    
    
    4,583
    
    
    
    15,737Other investments
    
    
    2,580
    
    
    
    2,354Total
    
    $
    23,675
    
    
    $
    51,371
  16




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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)
 (7) Concentrations of Credit Risk
   (8) Notes Receivable from Stockholders
  (9) Stock-Based Compensation
   (10) Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income / (loss)
    
    $
    11,894
    
    
    $
    (23,000
    )
    
    $
    19,837
    
    
    $
    (40,237
    )Less: Allocation of earnings to participating securities
    
    
    1,532
    
    
    
    
    
    
    
    2,471
    
    
    
    Net income / (loss) applicable to common shareholders
    
    $
    10,362
    
    
    $
    (23,000
    )
    
    $
    17,366
    
    
    $
    (40,237
    )Weighted average number of common shares outstanding(1)(2):Basic
    
    
    31,410,337
    
    
    
    30,794,738
    
    
    
    31,390,229
    
    
    
    30,776,870Effect of dilutive securities  restricted stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    
    31,410,337
    
    
    
    30,794,738
    
    
    
    31,390,229
    
    
    
    30,776,870Earnings per common share(1)(2):Basic
    
    $
    0.33
    
    
    $
    (0.75
    )
    
    $
    0.55
    
    
    $
    (1.31
    )Diluted
    
    $
    0.33
    
    
    $
    (0.75
    )
    
    $
    0.55
    
    
    $
    (1.31
    )
 
 (1)
    
    Participating securities in the form of unvested share based payment
awards amounted to weighted average shares of 4,643,055 and 4,467,396 for the three and nine
months ended September 30, 2009, respectively.(2)
    
    Basic and diluted common shares outstanding were equal for the three and
nine months ended September 30, 2009 and 2008 under the two-class method. 17




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
 (11) Income Taxes
  
    
    The Companys gross unrecognized tax benefits, excluding interest, increased
approximately $1,800 since December 31, 2008 primarily due to a re-evaluation of tax
positions taken in prior years.
 
    
    The Company classifies interest and penalties, if any, related to tax uncertainties as
income tax expenses. As of September 30, 2009, this amount had increased approximately
$450 since December 31, 2008.
 
    
    The Company and its subsidiaries file federal consolidated and various state, local and
foreign tax returns. The federal income tax returns have been audited through 2005.
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.
 (12) Industry Segment Data
 Segment Reporting
 (13) Net Capital Requirement
  September 30, 2009Net Capital
    
    $
    139,761Excess
    
    $
    135,615
  (14) Recent Accounting Developments
 , Investments in
Certain Entities That Calculate Net Asset Value Per Share (or Its Equivalent Fair Value Measurements and Disclosures
 18




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KBW, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(unaudited)
(Dollars in thousands, except per share information)
  Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest
Entities
 Accounting for Transfers of Financial Assets-an
amendment of FASB Statement No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 (15) Subsequent Events
  19




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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
   Overview
       20




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Business Environment
     21




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Results of Operations
 Three Months Ended September 30, 2009 Compared with Three Months Ended September 30, 2008
 Overview
    Three Months EndedSeptember 30,
    
    
    Period-to-Period2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(unaudited)Revenues:Investment banking
    
    $
    57,785
    
    
    $
    46,042
    
    
    $
    11,743
    
    
    
    25.5
    %Commissions
    
    
    36,595
    
    
    
    54,527
    
    
    
    (17,932
    )
    
    
    (32.9
    )Principal
transactions,
net
    
    
    23,675
    
    
    
    (53,836
    )
    
    
    77,511
    
    
    
    N/MInterest and
dividend income
    
    
    2,655
    
    
    
    5,891
    
    
    
    (3,236
    )
    
    
    (54.9
    )Investment
advisory fees
    
    
    341
    
    
    
    222
    
    
    
    119
    
    
    
    53.6Other
    
    
    1,588
    
    
    
    789
    
    
    
    799
    
    
    
    101.3Total revenues
    
    
    122,639
    
    
    
    53,635
    
    
    
    69,004
    
    
    
    128.7Expenses:Compensation and
benefits
    
    
    73,819
    
    
    
    60,318
    
    
    
    13,501
    
    
    
    22.4Non-compensation
expenses:Occupancy and
equipment
    
    
    5,567
    
    
    
    5,297
    
    
    
    270
    
    
    
    5.1Communications and data processing
    
    
    7,399
    
    
    
    7,290
    
    
    
    109
    
    
    
    1.5Brokerage and
clearance
    
    
    4,939
    
    
    
    6,039
    
    
    
    (1,100
    )
    
    
    (18.2
    )Business
development
    
    
    4,427
    
    
    
    5,054
    
    
    
    (627
    )
    
    
    (12.4
    )Interest
    
    
    135
    
    
    
    871
    
    
    
    (736
    )
    
    
    (84.5
    )Other
    
    
    4,829
    
    
    
    6,902
    
    
    
    (2,073
    )
    
    
    (30.0
    )Non-compensation
expenses
    
    
    27,296
    
    
    
    31,453
    
    
    
    (4,157
    )
    
    
    (13.2
    )Total expenses
    
    
    101,115
    
    
    
    91,771
    
    
    
    9,344
    
    
    
    10.2Income / (loss) before
income taxes
    
    
    21,524
    
    
    
    (38,136
    )
    
    
    59,660
    
    
    
    N/MIncome tax expense /
(benefit)
    
    
    9,630
    
    
    
    (15,136
    )
    
    
    24,766
    
    
    
    N/MNet income / (loss)
    
    $
    11,894
    
    
    $
    (23,000
    )
    
    $
    34,894
    
    
    
    N/M
    %
 
  22




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Three Month Non-GAAP Financial Measures
      23




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GAAP
    
    
    Reconciliation Amount
    
    
    Non-GAAP(dollars in thousands, except per share information)Three months ended September 30, 2009:Compensation and benefits expense
    
    $
    73,819
    
    
    $
    (2,689)
    (a)
    
    $
    71,130Income before income taxes
    
    $
    21,524
    
    
    $
    2,689
    (a)
    
    $
    24,213Income tax expense
    
    $
    9,630
    
    
    $
    1,136
    (b)
    
    $
    10,766Net income
    
    $
    11,894
    
    
    $
    1,553
    (c)
    
    $
    13,447Compensation ratio (d):
    
    
    60.2
    %
    
    
    
    
    
    
    58.0
    %Earnings per share (e):Basic
    
    $
    0.33
    
    
    $
    0.04
    
    
    $
    0.37Diluted
    
    $
    0.33
    
    
    $
    0.04
    
    
    $
    0.37Weighted average number of
common shares outstanding (e):Basic
    
    
    31,410,337
    
    
    
    
    (f)
    
    
    31,410,337Diluted
    
    
    31,410,337
    
    
    
    
    (f)
    
    
    31,410,337Three months ended September 30, 2008:Compensation and benefits expense
    
    $
    60,318
    
    
    $
    (2,843
    )(a)
    
    $
    57,475(Loss) / income before income taxes
    
    $
    (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
    )Compensation ratio (d):
    
    
    112.5
    %
    
    
    
    
    
    
    107.2
    %Earnings per share (e):Basic
    
    $
    (0.75
    )
    
    $
    0.06
    
    
    $
    (0.69
    )Diluted
    
    $
    (0.75
    )
    
    $
    0.06
    
    
    $
    (0.69
    )Weighted average number of
common shares outstanding (e):Basic
    
    
    30,794,738
    
    
    
    
    (f)
    
    
    30,794,738Diluted
    
    
    30,794,738
    
    
    
    
    (f)
    
    
    30,794,738
 
 (a)
    
    The non-GAAP adjustment represents the pre-tax expense with respect to the amortization of the IPO
restricted stock awards granted to employees on November 2006.(b)
    
    The non-GAAP adjustment with respect to income tax expense / (benefit) represents the elimination of the tax
expense / (benefit) resulting from the amortization of the IPO restricted stock awards in the period.(c)
    
    The non-GAAP adjustment with respect to net income / (loss) was the after-tax amortization of the IPO
restricted stock awards in the period.(d)
    
    The third quarter 2009 and 2008 compensation ratios were calculated by dividing compensation and benefits
expense by total revenues of $122,639 and $53,635 respectively.(e)
    
    Basic and diluted common shares outstanding were equal for each respective period under the two-class method.(f)
    
    Both the basic and diluted weighted average number of common shares outstanding were not adjusted.  24




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Revenues
 Investment Banking
  Commissions
  Principal Transactions, Net
  Interest and Dividend Income
  25




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##### Table of Contents



Other
  Expenses
 Compensation and Benefits
  Brokerage and Clearance
  Business Development
  Interest
  Income Tax Expense / (Benefit)
  Nine months Ended September 30, 2009 Compared with Nine months Ended September 30, 2008
 Overview
    26




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For the Nine Months EndedSeptember 30,
    
    
    Period-to-Period2009
    
    
    2008
    
    
    $ Change
    
    
    % Change(unaudited)Revenues:Investment banking
    
    $
    126,958
    
    
    $
    136,382
    
    
    $
    (9,424
    )
    
    
    (6.9
    )%Commissions
    
    
    108,466
    
    
    
    152,894
    
    
    
    (44,428
    )
    
    
    (29.1
    )Principal transactions, net
    
    
    51,371
    
    
    
    (112,973
    )
    
    
    164,344
    
    
    
    N/MInterest and dividend income
    
    
    6,430
    
    
    
    20,351
    
    
    
    (13,921
    )
    
    
    (68.4
    )Investment advisory fees
    
    
    974
    
    
    
    815
    
    
    
    159
    
    
    
    19.5Other
    
    
    5,812
    
    
    
    2,189
    
    
    
    3,623
    
    
    
    165.5Total revenues
    
    
    300,011
    
    
    
    199,658
    
    
    
    100,353
    
    
    
    50.3Expenses:Compensation and benefits
    
    
    184,965
    
    
    
    177,251
    
    
    
    7,714
    
    
    
    4.4Non-compensation expenses:Occupancy and equipment
    
    
    16,168
    
    
    
    14,579
    
    
    
    1,589
    
    
    
    10.9Communications and
data processing
    
    
    21,301
    
    
    
    20,632
    
    
    
    669
    
    
    
    3.2Brokerage and clearance
    
    
    12,423
    
    
    
    19,079
    
    
    
    (6,656
    )
    
    
    (34.9
    )Business development
    
    
    10,672
    
    
    
    12,971
    
    
    
    (2,299
    )
    
    
    (17.7
    )Interest
    
    
    361
    
    
    
    4,115
    
    
    
    (3,754
    )
    
    
    (91.2
    )Other
    
    
    17,058
    
    
    
    17,373
    
    
    
    (315
    )
    
    
    (1.8
    )Total non-compensation expenses
    
    
    77,983
    
    
    
    88,749
    
    
    
    (10,766
    )
    
    
    (12.1
    )Total expenses
    
    
    262,948
    
    
    
    266,000
    
    
    
    (3,052
    )
    
    
    (1.1
    )Income / (loss) before income taxes
    
    
    37,063
    
    
    
    (66,342
    )
    
    
    103,405
    
    
    
    N/MIncome tax expense / (benefit)
    
    
    17,226
    
    
    
    (26,105
    )
    
    
    43,331
    
    
    
    N/MNet income / (loss)
    
    $
    19,837
    
    
    $
    (40,237
    )
    
    $
    60,074
    
    
    
    N/M
    %
 
  Nine Month Non-GAAP Financial Measures
   27




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GAAP
    
    
    Reconciliation Amount
    
    
    Non-GAAP(dollars in thousands, except per share information)Nine months ended September 30, 2009:Compensation and benefits expense
    
    $
    184,965
    
    
    $
    (7,412)
    (a)
    
    $
    177,553Income before income taxes
    
    $
    37,063
    
    
    $
    7,412
    (a)
    
    $
    44,475Income tax expense
    
    $
    17,226
    
    
    $
    3,445
    (b)
    
    $
    20,671Net income
    
    $
    19,837
    
    
    $
    3,967
    (c)
    
    $
    23,804Compensation ratio (d)
    
    
    61.7
    %
    
    
    
    
    
    
    59.2
    %Earnings per share (e):Basic
    
    $
    0.55
    
    
    $
    0.11
    
    
    $
    0.66Diluted
    
    $
    0.55
    
    
    $
    0.11
    
    
    $
    0.66Weighted average number of common shares outstanding (e):Basic
    
    
    31,390,229
    
    
    
    
    (f)
    
    
    31,390,229Diluted
    
    
    31,390,229
    
    
    
    
    (f)
    
    
    31,390,229Nine months ended September 30, 2008:Compensation and benefits expense
    
    $
    177,251
    
    
    $
    (8,389)
    (a)
    
    $
    168,862(Loss) / income before income taxes
    
    $
    (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
    )Compensation ratio (d)
    
    
    88.8
    %
    
    
    
    
    
    
    84.6
    %Earnings per share (e):Basic
    
    $
    (1.31
    )
    
    $
    0.17
    
    
    $
    (1.14
    )Diluted
    
    $
    (1.31
    )
    
    $
    0.17
    
    
    $
    (1.14
    )Weighted average number of common
shares outstanding (e):Basic
    
    
    30,776,870
    
    
    
    
    (f)
    
    
    30,776,870Diluted
    
    
    30,776,870
    
    
    
    
    (f)
    
    
    30,776,870
 
 (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 expense / benefit represents the elimination of the tax
expense / (benefit) resulting from the amortization of the IPO restricted stock awards in the period.(c)
    
    The non-GAAP adjustment with respect to net income / (loss) was the after-tax amortization of the IPO
restricted stock awards in the period.(d)
    
    The compensation ratio for the nine months ended September 30, 2009 and 2008 were calculated by dividing
compensation and benefits expense by total revenues of $300,011 and $199,658, respectively.(e)
    
    Basic and diluted common shares outstanding were equal for each respective period under the two-class method.(f)
    
    Both the basic and diluted weighted average number of common shares outstanding were not adjusted.  28




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##### Table of Contents



Revenues
 Investment Banking
  Commissions
  Principal Transactions, Net
  Interest and Dividend Income
  Other
  Expenses
 Compensation and Benefits
  29




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##### Table of Contents



Occupancy and Equipment
  Brokerage and Clearance
  Business Development
  Interest
  Income Tax Expense/ (Benefit)
  30




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##### Table of Contents



Critical Accounting Policies and Estimates
    Fair Value of Financial Instruments
 Fair Value
Measurements and Disclosures.
 Financial Instruments, AICPA Audit and Accounting Guide  Brokers And Dealers In Securities
   Fair Value Hierarchy
  31




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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.
          32




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##### Table of Contents



Fair Value of Financial Instruments Control Process
  Income Taxes
  Income Taxes,
 Contractual Obligations
  Off-Balance Sheet Arrangements
   33




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##### Table of Contents



Recently Issued Accounting Standards, Not Yet Adopted
 , Investments in
Certain Entities That Calculate Net Asset Value Per Share (or Its Equivalent Fair Value Measurements and Disclosures
 Amendments to FASB Interpretation No. 46(R) Consolidation of Variable Interest Entities
 Accounting for Transfers of Financial Assets-an
amendment of FASB Statement No. 140 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
 Liquidity and Capital Resources
      34




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##### Table of Contents



Cash Flows
 Nine months ended September 30, 2009.
   Nine months ended September 30, 2008 .
   35




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##### Table of Contents



ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
 Market Risk
     High
    
    Low
    
    Average(dollars in thousands)Long Value:Equities
    
    $
    79,738
    
    
    $
    31,691
    
    
    $
    44,532Corporate and other debt
    
    $
    76,933
    
    
    $
    36,742
    
    
    $
    51,569Mortgage-backed securities
    
    $
    29,545
    
    
    $
    
    
    
    $
    3,428Other investments
    
    $
    40,302
    
    
    $
    34,893
    
    
    $
    36,667Short Value:Equities
    
    $
    34,463
    
    
    $
    11,162
    
    
    $
    20,058Corporate debt
    
    $
    3,855
    
    
    $
    
    
    
    $
    689U.S. Government and agency securities
    
    $
    7,957
    
    
    $
    
    
    
    $
    1,085
 Interest Rate Risk
  Credit Risk
  36




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##### Table of Contents



Inflation Risk
  Operational Risk
  
 ITEM 4. Controls and Procedures
    37




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##### Table of Contents



PART II. OTHER INFORMATION
 
 ITEM 1. Legal Proceedings
   
 ITEM 1A. Risk Factors
  
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Total Number ofShares Purchased as
    
    Approximate Dollar ValueTotal Number
    
    
    
    
    
    Part of Publicly
    
    of Shares that May Yet Beof Shares
    
    Average Price Paid
    
    Announced Plans or
    
    Purchased Under the PlansPeriod
    
    Purchased(1)(2)
    
    per Share
    
    Programs
    
    or ProgramsJuly 1, 2009 to July 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    August 1, 2009 to August 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    September 1, 2009 to September
30, 2009
    
    
    67,040
    
    
    $
    32.24
    
    
    
    
    
    
    
    Total
    
    
    67,040
    
    
    $
    32.24
    
    
    
    
    
    
    
    
 
 (1)
    
    All shares purchased were other than as part of a
publicly announced plan or program. The purchased
shares consist of cancelled shares of restricted stock
in satisfaction of withholding tax requirements.(2)
    
    All shares were immediately retired upon purchase by us. 
 ITEM 3. Defaults Upon Senior Securities
  38




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##### Table of Contents



ITEM 4. Submission of Matters to a Vote of Security Holders
  
 ITEM 5. Other Information
    
 ITEM 6. Exhibits
  39




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##### Table of Contents



KBW, INC.By:
    /s/ JOHN G. DUFFYName:
    John G. DuffyTitle:
    Chairman and Chief Executive OfficerBy:
    /s/ ROBERT GIAMBRONEName:
    Robert GiambroneTitle:
    Chief Financial Officer 40




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##### Table of Contents



ExhibitNumber
    
    Description10.1*
    
    
    Amendment, dated November 4, 2009, to the Amended and
Restated Employment Agreement with John G. Duffy and
KBW, Inc., dated as of December 31, 2008.10.2*
    
    
    Amendment, dated November 4, 2009, to the Amended and
Restated Employment Agreement with Thomas B. Michaud
and KBW, Inc., dated as of December 31, 2008.10.3*
    
    
    Amendment, dated November 4, 2009, to the Amended and
Restated Employment Agreement with Andrew M. Senchak
and KBW, Inc., dated as of December 31, 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.
 
 *
    
    Indicates a management or compensatory arrangement. 41