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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
  Form 10-K
  ANNUAL REPORT PURSUANT TO
    SECTION 13 OR 15(d)
 OF THE SECURITIES EXCHANGE ACT
    OF 1934
  For the fiscal year ended December 31, 2008
  Commission file number
    001-33138
 KBW, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

13-4055775(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)   787 Seventh Avenue, New York, New York 10019
 (Address of principal executive
    offices)
  Registrants telephone number, including area code:
 212-887-7777
  Securities registered pursuant to Section 12(b) of the
    Act:
  (Title of Each Class)

(Name of Each Exchange on Which Registered)Common Stock, par value $0.01 per share

New York Stock Exchange   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large
    accelerated
    filer þ
    Accelerated
    filer o
    Non-accelerated
    filer o
    Smaller
    reporting
    company o   Rule 12b-2 o þ
      Documents incorporated by reference: Form 10-K.




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##### 





TABLE OF
    CONTENTS
   
 PART IItem 1.


Business


1Item 1A.


Risk Factors


11Item 1B.


Unresolved Staff Comments


23Item 2.


Properties


23Item 3.


Legal Proceedings


24Item 4.


Submission of Matters to a Vote of Security
    Holders


24PART IIItem 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases


25Item 6.


Selected Financial Data


26Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


28Item 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


47Item 8.


Financial Statements and Supplementary Data


49Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


75Item 9A.


Controls and Procedures


75Item 9B.


Other Information


75PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


75Item 11.


Executive Compensation


75Item 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


75Item 13.


Certain Relationships and Related Transactions
    and Director Independence


75Item 14.


Principal Accountant Fees and Services


75PART IVItem 15.


Exhibits and Financial Statement Schedules


76Signatures


77Exhibit Index


E-1EX-10.13: FORM OF RESTRICTED STOCK AWARD AGREEMENTEX-10.14: AMENDED AND RESTATED EMPLOYMENT AGREEMENTEX-10.15: AMENDED AND RESTATED EMPLOYMENT AGREEMENTEX-10.16: AMENDED AND RESTATED EMPLOYMENT AGREEMENTEX-10.17: AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENTEX-10.18: AMENDED AND RESTATED CHANGE OF CONTROL AGREEMENTEX-21.1: LIST OF SUBSIDIARIES OF KBW, INC.EX-23.1: CONSENT OF KPMG LLPEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION   i




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CAUTIONARY
    STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
  Form 10-K Form 10-K Form 10-K.
   ii




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When we use the terms KBW, KBW, Inc.,
    the Company, we, us and
    our, we mean the combined business of KBW, Inc., a
    Delaware corporation, and of its consolidated subsidiaries,
    unless the context otherwise indicates. KBW, Inc. became the
    holding company for all other subsidiary operating companies in
    August 2005. Prior to August 2005, Keefe, Bruyette &
    Woods, Inc., now an operating subsidiary, was the parent company
    and references to KBW or the Company or
    we, us and our prior to
    August 2005 refer to the consolidated company structure prior to
    that date. All data provided herein is as of or for the period
    ended December 31, 2008 unless otherwise expressly
    noted.
  Item 1.
    Business.  Overview
    ,
       1




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Our
    Principal Businesses
  Investment
    Banking
    
    M&A and other strategic advisory services,
    Equity and fixed income securities offerings, and
    Mutual thrift conversions.     2




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M&A and Strategic Advisory Services.
  
    Evaluating potential acquisition targets,
    Providing valuation analyses,
    Evaluating and proposing financial and strategic alternatives,
    Rendering, if appropriate, fairness opinions,
    Providing advice regarding the timing, structure and pricing of
    a proposed acquisition, and
    Assisting in negotiating and closing the acquisition.    
    Evaluating and recommending financial and strategic alternatives
    with respect to a sale,
    Advising on the appropriate sale process,
    Providing valuation analyses,
    Assisting in preparing an offering memorandum or other
    appropriate sales materials,
    Rendering, if appropriate, fairness opinions,
    Identifying and contacting selected qualified acquirors, and
    Assisting in negotiating and closing the proposed sale.    Capital Raising Services.
 3




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Equity
    and Fixed Income Sales and Trading
  Equity Sales and Trading.
          Fixed Income Sales and Trading.
     4




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Research
       5




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Number ofSector

CompaniesBanks and Thrifts Regional Banks and Thrifts


173Large Cap Banks and Thrifts


19Trust and Custody Banks


3Total


195Property Casualty Insurance


55Life Insurance


22Other Insurance


9Total


86Diversified Financials Equity REITs


43Broker Dealers


26Specialty Finance


23Asset Managers


16Processing/Business Information


15Mortgage REITs


11Homebuilders


3Total


137Total U.S. Companies under coverage


418       one-on-one
  Asset
    Management
   6




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Employees
    Competition
                Regulation
   7




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non-U.S. governmental
  Rule 15c3-1. Rule 15c3-1
  non-U.S. jurisdictions
    non-U.S. governments, and/or
 8




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and/or
    non-U.S. government cease-and-desist
  Available
    Information
  1-800-SEC-0330. http://www.sec.gov,
  http://www.kbw.com, Form 10-K, Form 10-Q, Form 8-K,
  (212) 887-7777.
  Executive
    Officers
    John G. Duffy (59).
  Andrew M. Senchak (61).
 9




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Thomas B. Michaud (44).
  Robert Giambrone (54).
  Mitchell B. Kleinman (54).
 10




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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.
    and/or
  
    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. Reduced merger consideration because of lower
    valuations of financial service companies may also reduce our
    fees to the extent they are based on a percentage of merger
    consideration. 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.
    Any plans for expansion outside of the United States of our
    client base or the services we provide, including through our
    existing United Kingdom (UK) subsidiary, may be
    delayed or impaired.
    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. 11




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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.
        Lack
    of sufficient liquidity or access to capital could impair our
    business and financial condition.
    Difficulty
    in determining the fair value of financial instruments under
    current market conditions.
  tm
   12




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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.
   Difficult
    market conditions have adversely affected the financial services
    industry, which is the industry on which we focus,
     Our operations and infrastructure may
    malfunction or fail,  Committing our own
    capital in our underwriting, trading and other businesses
    increases the potential for significant losses, and
     We may be adversely affected by changes in
    services and products provided by third parties and increases in
    related costs.
 13




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Committing
    our own capital in our underwriting, trading and other
    businesses increases the potential for significant
    losses.
  lock-up
      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.
   14




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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.
     15




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Pricing
    and other competitive pressures may impair the revenues and
    profitability of our sales and trading business.
    Risks Related to
    Our Industry,
    Our
    capital markets and strategic advisory engagements are singular
    in nature and do not generally provide for subsequent
    engagements.
  engagement-by-engagement
  Our
    operations and infrastructure may malfunction or
    fail.
   16




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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.
   17




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Poor
    investment performance may reduce revenues and profitability of
    our asset management operations.
  and/or
    Strategic
    investments, acquisitions, entry into new businesses and joint
    ventures may result in additional risks and uncertainties in our
    business.
       18




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Growth
    of our business could result in increased costs.
      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.
  Investments
    by our directors, officers, employees and our employee profit
    sharing retirement plan may conflict with the interests of our
    stockholders.
     19




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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.
   20




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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.
   21




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Risks
    Related to Our Shares
  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.
   22




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Future
    sales, or the possibility of future sales, of a substantial
    amount of our common stock could cause our stock price to
    decline.
    form S-3,
  We do
    not expect to pay any cash dividends in the foreseeable
    future.
    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.     23




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Item 3.
    Legal
    Proceedings          Sentinel
    Litigation
      Item 4.
    Submission
    of Matters to a Vote of Security Holders.   24




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PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.      2008


2007High


Low


High


LowFourth Quarter

$
32.40


$
19.59


$
32.92


$
24.48Third Quarter


37.50



19.76



30.87



22.74Second Quarter


28.14



20.06



35.19



29.38First Quarter


29.66



18.63



37.84



28.33           Rule 10b-18(a)(3)
  Total Number ofShares


Approximate DollarTotal Number





Part of Publicly


of Shares that May Yetof Shares


Average Price


Announced Plans


Purchased Under thePeriod

Purchased(1)(2)


per Share


Programs


or ProgramsOctober 1  October 31, 2008














November 1  November 30, 2008


203,695


$
24.49







December 1  December 31, 2008














Total


203,695


$
24.49







     (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. 25




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Item 6.Selected
    Financial Data.  Set forth below is selected consolidated financial and other
    data of KBW as of and for the five years ended December 31,
    2008.
  Years Ended December 31,2008


2007


2006


2005


2004(dollars in thousands, except per share information)Revenues:Investment banking

$
163,664


$
226,464


$
210,026


$
149,332


$
163,114Commissions


192,752



165,803



116,625



96,301



66,081Principal transactions, net


(142,962
)


(7,520
)


45,773
(1)


36,568



44,637Interest and dividend income


24,687



37,612



26,920



17,984



8,629Investment advisory fees


1,197



1,751



5,036



3,843



4,896Other


2,879



3,418



2,206



3,838
(2)


12,941
(2)Total revenues


242,217



427,528



406,586



307,866



300,298Expenses:Compensation and benefits


226,311



257,070



216,518



187,428



170,484Occupancy and equipment


19,831



18,722



17,728



16,877



14,545Communications and data processing


27,743



24,283



19,465



18,526



15,462Brokerage and clearance


24,244



22,967



19,728



17,390



15,289Interest


4,603



14,732



11,023



8,105



872Business development


16,115



16,601



13,218



13,141



11,772Other


25,375



23,748



17,257



15,257



16,734Total non-compensation expenses


117,911



121,053



98,419



89,296



74,674Total expenses


344,222



378,123



314,937



276,724



245,158(Loss)/income before income taxes


(102,005
)


49,405



91,649



31,142



55,140Income tax (benefit)/expense


(39,656
)


22,113



38,365



13,735



23,867Net (loss)/income(3)

$
(62,349
)

$
27,292


$
53,284


$
17,407


$
31,273Earnings per share(3)(4)(5):Basic

$
(2.02
)

$
0.89


$
1.94


$
0.64


$
1.24Diluted

$
(2.02
)

$
0.86


$
1.93


$
0.64


$
1.24Weighted average number of common shares outstanding(4)(5):Basic


30,838,361



30,654,058



27,512,023



27,194,404



25,253,771Diluted


30,838,361



31,561,751



27,565,453



27,215,001



25,296,556Consolidated Statements of Financial Condition Data:Total assets

$
571,466


$
864,450


$
804,865


$
661,161


$
574,564Stockholders equity(3)

$
396,731


$
448,426


$
397,414


$
265,709


$
269,122Other Data (Unaudited):Book value per common share

$
13.30


$
15.31


$
13.59


$
10.13


$
10.81  26




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(1)
    
    Principal transactions, net for the year ended December 31,
    2006 included a gain of approximately $5.4 million with
    respect to the exchange of our New York Stock Exchange seat for
    cash and shares of the merged NYSE Group, Inc.(2)
    
    Other revenues in 2004 include approximately $10.1 million
    in insurance recoveries and government grants relating to the
    World Trade Center attacks in 2001. In 2005, we received
    approximately $0.4 million of additional government grants
    relating to the same World Trade Center attacks.(3)
    
    Prior to the date of the IPO and the termination of the 2005
    amended and restated stockholders agreement, common stock
    was classified as a liability. See Note 9 to our audited
    Consolidated Financial Statements included elsewhere in this
    report.(4)
    
    In calculating shares of common stock outstanding, we give
    retroactive effect to a 43 for 1 stock split that we effected on
    November 1, 2006.(5)
    
    In accordance with Statement of Financial Accounting Standards
    No. 128, basic and diluted common shares outstanding were equal
    for the year ended December 31, 2008. 27




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Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations.  The following discussion should be read in conjunction with
    our audited consolidated financial statements and the related
    notes included elsewhere in this report. In addition to
    historical information, this discussion includes forward-looking
    information that involves risks and assumptions, which could
    cause actual results to differ materially from managements
    expectations. See Cautionary Statement Regarding
    Forward-Looking Statements included in the beginning of
    this report.
  Overview
  ,
             28




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Business
    Environment
           29




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Results
    of Operations
  Year
    Ended December 31, 2008 Compared with Year Ended
    December 31, 2007
  Overview
       30




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Year Ended December 31,


Period to Period2008


2007


$ Change


% Change(dollars in thousands)Revenues:Investment banking

$
163,664


$
226,464


$
(62,800
)


(27.7
)%Commissions


192,752



165,803



26,949



16.3Principal transactions, net


(142,962
)


(7,520
)


(135,442
)


N/MInterest and dividend income


24,687



37,612



(12,925
)


(34.4
)Investment advisory fees


1,197



1,751



(554
)


(31.6
)Other


2,879



3,418



(539
)


(15.8
)Total revenues


242,217



427,528



(185,311
)


(43.3
)Expenses:Compensation and benefits


226,311



257,070



(30,759
)


(12.0
)Occupancy and equipment


19,831



18,722



1,109



5.9Communications and data processing


27,743



24,283



3,460



14.2Brokerage and clearance


24,244



22,967



1,277



5.6Interest


4,603



14,732



(10,129
)


(68.8
)Business development


16,115



16,601



(486
)


(2.9
)Other


25,375



23,748



1,627



6.9Total non-compensation expenses


117,911



121,053



(3,142
)


(2.6
)Total expenses


344,222



378,123



(33,901
)


(9.0
)(Loss)/income before income taxes


(102,005
)


49,405



(151,410
)


N/MIncome tax (benefit)/expense


(39,656
)


22,113



(61,769
)


N/MNet (loss)/income

$
(62,349
)

$
27,292


$
(89,641
)


N/M
%     N/M  Not Meaningful
  2008 and
    2007 Non-GAAP Financial Measures
  Share-Based
    Payment
     31




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ReconciliationGAAP


Amount


Non-GAAP(dollars in thousands, except per share information)Year ended December 31, 2008:Compensation and benefits expense

$
226,311


$
(11,456
)(a)

$
214,855(Loss) / income before income taxes

$
(102,005
)

$
11,456
(a)

$
(90,549
)Income tax (benefit) / expense

$
(39,656
)

$
4,454
(b)

$
(35,202
)Net (loss) / income

$
(62,349
)

$
7,002
(c)

$
(55,347
)Earnings per share(d):Basic

$
(2.02
)

$
0.23


$
(1.79
)Diluted

$
(2.02
)

$
0.23


$
(1.79
)Weighted average number of common shares outstanding(d):Basic


30,838,361




(e)


30,838,361Diluted


30,838,361




(e)


30,838,361Year ended December 31, 2007:Compensation and benefits expense

$
257,070


$
(12,509
)(a)

$
244,561Income before income taxes

$
49,405



12,509
(a)

$
61,914Income tax expense

$
22,113


$
5,599
(b)

$
27,712Net income

$
27,292


$
6,910
(c)

$
34,202Earnings per share:Basic

$
0.89


$
0.23


$
1.12Diluted

$
0.86


$
0.22


$
1.08Weighted average number of common shares outstanding:Basic


30,654,058




(e)


30,654,058Diluted


31,561,751




(e)


31,561,751     (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 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 to net (loss) / income was the after-tax
    amortization of the IPO restricted stock awards in the
    respective periods.(d)
    
    In accordance with Statement of Financial Accounting Standards
    No. 128, basic and diluted common shares outstanding are
    equal for the year ended December 31, 2008.(e)
    
    Both the basic and diluted weighted average common shares
    outstanding were not adjusted.   32




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Revenues
  Investment
    Banking
  tm tm tm
  Commissions
    Principal
    Transactions, Net
   33




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tm tm
    Interest
    and Dividend Income
    Investment
    Advisory Fees
    Other
    Expenses
  Compensation
    and Benefits
    Occupancy
    and Equipment
    Communications
    and Data Processing
   34




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Brokerage
    and Clearance
    Interest
    Business
    Development
    Other
    Income
    Tax Benefit / Expense
    Year
    Ended December 31, 2007 Compared with Year Ended
    December 31, 2006
  Overview
     35




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Year Ended December 31,


Period to Period2007


2006


$ Change


% Change(dollars in thousands)Revenues:Investment banking

$
226,464


$
210,026


$
16,438



7.8
%Commissions


165,803



116,625



49,178



42.2Principal transactions, net


(7,520
)


45,773



(53,293
)


(116.4
)Interest and dividend income


37,612



26,920



10,692



39.7Investment advisory fees


1,751



5,036



(3,285
)


(65.2
)Other


3,418



2,206



1,212



54.9Total revenues


427,528



406,586



20,942



5.2Expenses:Compensation and benefits


257,070



216,518



40,552



18.7Occupancy and equipment


18,722



17,728



994



5.6Communications and data processing


24,283



19,465



4,818



24.8Brokerage and clearance


22,967



19,728



3,239



16.4Interest


14,732



11,023



3,709



33.6Business development


16,601



13,218



3,383



25.6Other


23,748



17,257



6,491



37.6Total non-compensation expenses


121,053



98,419



22,634



23.0Total expenses


378,123



314,937



63,186



20.1Income before income taxes


49,405



91,649



(42,244
)


(46.1
)Income tax expense


22,113



38,365



(16,252
)


(42.4
)Net income

$
27,292


$
53,284


$
(25,992
)


(48.8
)%   2007 and
    2006 Non-GAAP Financial Measures
   36




---



##### Table of Contents



ReconciliationGAAP


Amount


Non-GAAP(dollars in thousands, except per share information)December 31, 2007Compensation and benefits expense

$
257,070


$
(12,509
)(a)

$
244,561Income before income taxes

$
49,405


$
12,509
(a)

$
61,914Income tax expense

$
22,113


$
5,599
(b)

$
27,712Net income

$
27,292


$
6,910
(c)

$
34,202Compensation ratio(d)


60.1
%






57.2
%Earnings per share:Basic

$
0.89


$
0.23


$
1.12Diluted

$
0.86


$
0.22


$
1.08Weighted average number of common shares outstanding:Basic


30,654,058




(e)


30,654,058Diluted


31,561,751




(e)


31,561,751December 31, 2006Compensation and benefits expense

$
216,518


$
(1,882
)(a)

$
214,636Income before income taxes

$
91,649


$
1,882
(a)

$
93,531Income tax expense

$
38,365


$
821
(b)

$
39,186Net income

$
53,284


$
1,061
(c)

$
54,345Compensation ratio(d)


53.3
%






52.8
%Earnings per share:Basic

$
1.94


$
0.04


$
1.98Diluted

$
1.93


$
0.04


$
1.97Weighted average number of common shares outstanding:Basic


27,512,023




(e)


27,512,023Diluted


27,565,453




(e)


27,565,453     (a)
    
    The non-GAAP adjustment represents the pre-tax expense with
    respect to the amortization of the IPO restricted stock awards
    granted to employees on November 8, 2006.(b)
    
    The non-GAAP adjustment to income tax expense represents the
    elimination of the tax benefit resulting from the amortization
    of the IPO restricted stock awards in the period.(c)
    
    The non-GAAP adjustment to net income was the after-tax
    amortization of the IPO restricted stock awards in the
    respective periods.(d)
    
    The twelve months ended December 31, 2007 and 2006
    compensation ratios were calculated by dividing compensation and
    benefits expense by total revenues of $427,528 and $406,586,
    respectively.(e)
    
    Both the basic and diluted weighted average common shares
    outstanding were not adjusted.   37




---



##### Table of Contents



Revenues
  Investment
    Banking
  tm
  Commissions
    Principal
    Transactions, Net
  tm
  Interest
    and Dividend Income
    Investment
    Advisory Fees
    Other
   38




---



##### Table of Contents



Expenses
  Compensation
    and Benefits
      Occupancy
    and Equipment
    Communications
    and Data Processing
    Brokerage
    and Clearance
    Interest
    Business
    Development
    Other
   39




---



##### Table of Contents



Income
    Tax Expense
    Liquidity
    and Capital Resources
        tm
    form S-3 Form 10-K
   40




---



##### Table of Contents



Cash
    Flows
  Year ended December 31, 2008.
      Year ended December 31, 2007.
   41




---



##### Table of Contents



Year ended December 31, 2006.
      Critical
    Accounting Policies and Estimates
  Form 10-K
      Fair
    Value of Financial Instruments
  Fair Value
    Measurements
 42




---



##### Table of Contents



No. 02-3
  The Fair
    Value Option for Financial Assets and Financial Liabilities instrument-by-instrument AICPA Audit and Accounting
    Guide  Brokers And Dealers In Securities
      Fair
    Value Hierarchy
    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.   43




---



##### Table of Contents



and/or
         44




---



##### 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
    Payments due by PeriodTotal


2009


2010 - 2011


2012 - 2013


2014 and thereafterOperating lease obligations

$
105,537


$
14,122


$
28,271


$
28,521


$
34,623    45




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##### Table of Contents



Off-Balance
    Sheet Arrangements
  Qualitative and Quantitative
    Disclosures About Market Risk  Credit Risk
    Recently
    Issued Accounting Standards, Not Yet Adopted
  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133
 46




---



##### Table of Contents



Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk.  Market
    Risk
  and/or
        High


Low


Average(dollars in thousands)Long Value:Equities

$
102,941


$
41,765


$
72,984Corporate and other debt


235,444



53,879



146,347U.S. Government and agency securities


9,972







897Mortgage backed securities


14,839







1,592Other investments


54,540



34,893



45,271Short Value:Equities

$
48,061


$
8,405


$
30,767Corporate and other debt


7,034







1,799U.S. Government and agency securities


23,780







4,955   Interest
    Rate Risk
    Credit
    Risk
   47




---



##### Table of Contents



Inflation
    Risk
    Operational
    Risk
   48




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data.  INDEX TO
    FINANCIAL STATEMENTS
  PageManagements Report on Internal Control over
    Financial Reporting.


50Report of Independent Registered Public
    Accounting Firm.


51Consolidated Statements of Financial Condition as
    of December 31, 2008 and 2007.


53Consolidated Statements of Operations for Each of
    the Years in the Three-Year Period Ended December 31,
    2008.


54Consolidated Statements of Changes in
    Stockholders Equity and Comprehensive Income for Each of
    the Years in the Three-Year Period Ended December 31,
    2008.


55Consolidated Statements of Cash Flows for Each of
    the Years in the Three-Year Period Ended December 31,
    2008.


56Notes to Consolidated Financial
    Statements.


57  49




---



##### Table of Contents



Managements
    Report on Internal Control over Financial Reporting      Internal Control  Integrated Framework
     50




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm     Internal Control  Integrated
    Framework
        Internal Control  Integrated Framework
        51




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm
           Internal Control  Integrated Framework
  KPMG
    LLP
    52




---



##### Table of Contents



KBW, INC.
    AND SUBSIDIARIESConsolidated Statements of Financial Condition
    December 31, 2008 and 2007
    (Dollars in thousands)
  2008


2007ASSETSCash and cash equivalents

$
194,981


$
194,358Financial instruments owned, at fair value:Equities


41,765



102,966Corporate and other debt


53,879



224,812Other investments


34,893



54,515130,537



382,293Securities purchased under resale agreements






23,846Receivables from clearing brokers


130,682



191,234Accounts receivable


19,391



21,196Income taxes receivable


33,270



Furniture, equipment and leasehold improvements, at cost, less
    accumulated depreciation and amortization of $21,546 in 2008 and
    $19,259 in 2007


18,895



19,801Other assets


43,710



31,722Total assets

$
571,466


$
864,450LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Securities sold under repurchase agreements

$



$
94,784Short-term borrowings


31,547



65,099Financial instruments sold, not yet purchased, at fair value:Equities


11,162



48,061Corporate and other debt






5,000U.S. Government and agency securities






23,78011,162



76,841Accounts payable, accrued expenses, and other liabilities


122,070



172,263Income taxes payable


9,956



7,037Total liabilities


174,735



416,024Stockholders equity:Preferred stock






Common stock


298



293Paid-in capital


137,618



114,014Retained earnings


275,019



337,368Notes receivable from stockholders


(2,225
)


(5,254
)Accumulated other comprehensive (loss) / income


(13,979
)


2,005Total stockholders equity


396,731



448,426Total liabilities and stockholders equity

$
571,466


$
864,450    53




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##### Table of Contents



KBW Inc.
    and SubsidiariesConsolidated Statements of Operations
    Years Ended December 31, 2008, 2007 and 2006
    (Dollars in thousands, except per share information)
  2008


2007


2006Revenues:Investment banking

$
163,664


$
226,464


$
210,026Commissions


192,752



165,803



116,625Principal transactions, net


(142,962
)


(7,520
)


45,773Interest and dividend income


24,687



37,612



26,920Investment advisory fees


1,197



1,751



5,036Other


2,879



3,418



2,206Total revenues


242,217



427,528



406,586Expenses:Compensation and benefits


226,311



257,070



216,518Occupancy and equipment


19,831



18,722



17,728Communications and data processing


27,743



24,283



19,465Brokerage and clearance


24,244



22,967



19,728Interest


4,603



14,732



11,023Business development


16,115



16,601



13,218Other


25,375



23,748



17,257Total expenses


344,222



378,123



314,937(Loss) / income before income taxes


(102,005
)


49,405



91,649Income tax (benefit) / expense


(39,656
)


22,113



38,365Net (loss) / income (Note 9)

$
(62,349
)

$
27,292


$
53,284Earnings per common share (Note 9):Basic

$
(2.02
)

$
0.89


$
1.94Diluted

$
(2.02
)

$
0.86


$
1.93Weighted average number of common shares outstanding:Basic


30,838,361



30,654,058



27,512,023Diluted


30,838,361



31,561,751



27,565,453    54




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##### Table of Contents



KBW, INC.
    AND SUBSIDIARIESConsolidated Statements of Changes in
    Stockholders Equity and Comprehensive Income
    Years ended December 31, 2008, 2007 and 2006
    (Dollars in thousands, except per share information)
  Notes


AccumulatedReceivable


Other


TotalPreferred


Common


Paid-in


Retained


from


Comprehensive


StockholdersStock


Stock


Capital


Earnings


Stockholders


Income (loss)


EquityBalance at December 31, 2005

$



$
6


$
27,410


$
256,792


$
(17,644
)

$
(855
)

$
265,709Net income (Note 9)














53,284











53,284Other comprehensive income, currency translation adjustment






















2,325



2,325Total comprehensive income


























55,609Purchase of 1,182,328 shares of common stock






(12
)


(12,206
)






1,218







(11,000
)Issuance of 4,122,482 shares of common stock






41



76,808















76,849Forty-three for one stock split effective November 1, 2006






257



(257
)














Amortization of stock-based compensation










3,476















3,476Restricted stock units converted










(1,175
)














(1,175
)Excess net tax benefit related to delivery of restricted stock










363















363Repayment of notes receivable from stockholders


















7,583







7,583Balance at December 31, 2006






292



94,419



310,076



(8,843
)


1,470



397,414Net income














27,292











27,292Other comprehensive income, currency translation adjustment






















535



535Total comprehensive income


























27,827Amortization of stock-based compensation










20,564















20,564Cancellation of 58,360 shares of restricted stock in
    satisfaction of withholding tax requirements










(1,965
)














(1,965
)Purchase of 20,812 shares of common stock










(205
)






205







Issuance of 163,244 shares of common stock






1



2,641















2,642Restricted stock units converted










(1,078
)














(1,078
)Stock-based awards vested










(1,564
)














(1,564
)Excess tax benefit related to delivery of restricted stock










1,202















1,202Repayment of notes receivable from stockholders


















3,384







3,384Balance at December 31, 2007






293



114,014



337,368



(5,254
)


2,005



448,426Net loss














(62,349
)










(62,349
)Other comprehensive loss, currency translation adjustment
    translation adjustment






















(15,984
)


(15,984
)Total comprehensive loss


























(78,333
)Amortization of stock-based compensation










30,540















30,540Cancellation of 319,359 shares of restricted stock in
    satisfaction of withholding tax requirements






(3
)


(7,892
)














(7,895
)Purchase of 5,875 shares of common stock










(60
)






60







Issuance of 870,037 shares of common stock






8



19,300















19,308Restricted stock units converted










(854
)














(854
)Stock-based awards vested










(18,312
)














(18,312
)Excess net tax benefit related to delivery of restricted stock










882















882Repayment of notes receivable from stockholders


















2,969







2,969Balance at December 31, 2008

$



$
298


$
137,618


$
275,019


$
(2,225
)

$
(13,979
)

$
396,731     Number of SharesPar Value

December 31,


Authorized


Issued*


Outstanding*$0.01


2008



140,000,000



29,833,816



29,833,816$0.01


2007



140,000,000



29,289,013



29,289,013$0.01


2006



140,000,000



29,204,941



29,204,941     (*)
    
    These share amounts exclude legally vested restricted stock
    units.    Number of SharesPar Value

December 31,


Authorized


Issued


Outstanding$0.01


2008



10,000,000







$0.01


2007



10,000,000







$0.01


2006



10,000,000







    55




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##### Table of Contents



KBW, INC.
    AND SUBSIDIARIES
    Consolidated Statements of Cash Flows
    Years ended December 31, 2008, 2007 and 2006
    (Dollars in thousands)  2008


2007


2006Cash flows from operating activities:Net (loss) / income

$
(62,349
)

$
27,292


$
53,284Adjustments to reconcile net (loss) / income to net cash
    provided by operating activities:Non-monetary transaction






(6,518
)


Amortization of stock-based compensation


30,540



20,564



3,476Depreciation and amortization


4,801



4,895



5,906Deferred income tax (benefit) expense


(13,158
)


(10,125
)


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


251,537



(45,038
)


55,899Securities purchased under resale agreements


23,846



38,473



(18,438
)Receivables from clearing brokers


59,828



(5,522
)


(94,082
)Accounts receivable


969



4,544



47Income taxes receivable


(33,270
)






Other assets


972



(9,038
)


81Increase (decrease) in operating liabilities:Financial instruments sold, not yet purchased, at fair value


(65,679
)


(34,131
)


13,973Securities sold under repurchase agreements


(94,784
)


10,248



82,261Short-term borrowings


(33,552
)


36,599



(35,250
)Payable to clearing broker










(91,977
)Accounts payable, accrued expenses and other liabilities


(47,035
)


5,592



36,285Income taxes payable


2,987



(9,735
)


6,707Net cash provided by operating activities


25,653



28,100



18,502Cash flows from investing activities:Purchase of furniture, equipment and leasehold improvements


(3,719
)


(2,545
)


(3,442
)Net cash used in investing activities


(3,719
)


(2,545
)


(3,442
)Cash flows from financing activities:Issuance of shares of common stock


142







75,674Purchase of shares of common stock










(11,000
)Cancellation of restricted stock in satisfaction of withholding
    tax requirements


(7,895
)


(1,965
)


Excess net tax benefit related to stock-based awards


882



1,202



363Repayment of notes receivable from stockholders


2,969



3,384



7,583Net cash (used in) / provided by financing activities


(3,902
)


2,621



72,620Currency adjustment:Effect of exchange rate changes on cash


(17,409
)


535



2,325Net increase in cash and cash equivalents


623



28,711



90,005Cash and cash equivalents at the beginning of the year


194,358



165,647



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

$
194,981


$
194,358


$
165,647Supplemental disclosures of cash flow information:Cash paid during the year for:Income taxes

$
1,419


$
47,546


$
29,334Interest

$
6,075


$
14,800


$
10,743    56




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES



NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

(Dollars
    in thousands, except share information)  (1)
    Organization
    and Basis of Presentation    (2)
    Summary
    of Significant Accounting Policies  (a)
    Principles
    of Consolidation    Consolidated Financial
    Statements Consolidation of Variable
    Interest Entities  an interpretation of ARB
    No. 51
  04-5 (EITF 04-5), Determining Whether a General Partner, or the General
    Partners as a Group, Controls a Limited Partnership or Similar
    Entity When the Limited Partners Have Certain Rights EITF 04-5
  (b)
    Use of
    Estimates   57




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
  (c)
    Cash
    and Cash Equivalents    (d)
    Fair
    Value of Financial Instruments  Fair
    Value Measurements No. 02-3
    The Fair Value Option for Financial Assets and Financial
    Liabilities instrument-by-instrument AICPA Audit and
    Accounting Guide Brokers And Dealers In
    Securities.
  (e)
    Securities
    Purchased Under Resale Agreements and Securities Sold Under
    Repurchase Agreements   58




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
      (f)
    Receivables
    From and Payable to Clearing Brokers    (g)
    Furniture,
    Equipment and Leasehold Improvements    (h)
    Revenue
    Recognition  Investment
    Banking
        
    Underwriting revenues are recognized on trade date, net of
    related syndicate expenses, at the time the underwriting is
    completed. In syndicated underwritten transactions, management
    estimates the Companys share of transaction-related
    expenses incurred by the syndicate, and the Company recognizes
    revenue net of such expense. On final settlement, the Company
    adjusts these amounts to reflect the actual transaction-related
    expenses and resulting underwriting fee.
    Private placement revenues are recorded when the services
    related to the underlying transaction are completed under the
    terms of the engagement. This is generally the closing date of
    the transaction.    Commissions
   59




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
  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    Accounting for Uncertainty in
    Income Taxes, an Interpretation of FASB Statement No. 109,
  (l)
    Earnings
    Per Share (EPS)   60




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
    (m)
    Foreign
    Currency Translation    (n)
    Contributions  Accounting For Contributions Received
    and Contributions Made
  (3)
    Financial
    Instruments  Fair Value Measurements
  and/or
  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.     61




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
        Assets at
    Fair Value as of December 31, 2008
  Level 1


Level 2


Level 3


TotalFinancial instruments owned, at fair value:Equities

$
19,169


$
7,031


$
14,722


$
40,922Corporate and other debt






21,191



32,688



53,879Other investments










34,893



34,893Total non derivative trading assets


19,169



28,222



82,303



129,694Derivative financial instruments


843











843Total financial instruments owned

$
20,012


$
28,222


$
82,303


$
130,537   Liabilities
    at Fair Value as of December 31, 2008
  Level 1


Level 2


Level 3


TotalFinancial instruments sold, but not yet purchased, at fair
    value:Equities

$
10,701


$



$



$
10,701Total non derivative trading liabilities


10,701






$




10,701Derivative financial instruments


461











461Total financial instruments sold, not yet purchased

$
11,162


$



$



$
11,162  62




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except 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         Changes in UnrealizedTotal Gains











Gains and (Losses)Balance as of


and (Losses)





Transfers


Balance as of


Included in EarningsDecember 31,


(Realized and


Purchases/


(out) of


December 31,


Related to Assets Still2007


Unrealized)


(Sales), Net


Level 3


2008


Held at Reporting DateNon-derivative trading assets

$
171,816


$
(81,049
)

$
(2,363
)

$
(6,101
)

$
82,303


$
(69,814
)   63




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
  Changes in UnrealizedTotal Gains











Gains and (Losses)Balance as of


and (Losses)





Transfers


Balance as of


Included in EarningsDecember 31,


(Realized and


Purchases/


in/(out) of Level


December 31,


Related to Assets Still2006


Unrealized)


(Sales), Net


3


2007


Held at Reporting DateNon-derivative trading assets

$
56,227


$
(2,388
)

$
23,832


$
94,145


$
171,816


$
(1,814
)   and/or
        (4)
    Short-Term
    Borrowings    (5)
    Commitments
    and Contingencies  (a)
    Leases   64




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
    Lease PaymentsYear:2009

$
14,1222010


14,1682011


14,1032012


14,3102013


14,211Thereafter


34,623Total

$
105,537     (b)
    Litigation  Accounting for
    Contingencies
      (c)
    Limited
    Partnership Commitments   65




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##### Table of Contents



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





End ofNotional


Average Fair


Period FairValue


Value


ValueDecember 31, 2008:Purchased options

$
7,721


$
557


$
843Written options

$
6,100


$
344


$
461Short futures contracts

$



$



$
December 31, 2007:Purchased options

$
1,100


$
101


$
103Written options

$
2,600


$
100


$
78Short futures contracts

$
3,923


$



$
  66




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
  (7)
    Concentrations
    of Credit Risk    and/or
  (8)
    Notes
    Receivable from Stockholders    (9)
    Common
    Stock    (10)
    Securitization
    Activities  tm tm tm
  (11)
    Non-Monetary
    Transaction   67




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
  (12)
    Stock-Based
    Compensation    2006 Equity Incentive Plan:
    WeightedYear Ended


Average Grant DateDecember 31, 2008


Fair ValueRestricted stock awards:Share balance, beginning of year


3,023,825


$
22.89Grants


1,137,111


$
28.43Forfeited


(263,807
)

$
24.00Vested


(769,277
)

$
23.80Share balance, end of year


3,127,852


$
24.59   Year Ended December 31,2008


2007


2006Restricted stock awards:Share balance, beginning of year


3,023,825



2,592,100



Grants


1,137,111



626,393



2,592,200Forfeited


(263,807
)


(144,643
)


(100
)Vested


(769,277
)


(50,025
)


Share balance, end of year


3,127,852



3,023,825



2,592,100       Restricted Stock Units:
 68




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
      WeightedYear Ended


Average GrantDecember 31, 2008


Date Fair ValueFuture


No Future


Future


No FutureService


Service


Service


ServiceRequired


Required


Required


RequiredRestricted stock units:Balance, beginning of year


3,698



1,432,631


$
9.98


$
6.80Vested


(3,698
)


3,698



9.98



9.98Converted and redeemed






(95,331
)






8.96Balance, end of year






1,340,998


$



$
6.66   Year Ended December 31,2008


2007


2006Restricted stock units:Balance, beginning of year


1,436,329



1,549,548



1,751,003Grants










3,698Forfeited










Converted and redeemed


(95,331
)


(113,219
)


(205,153
)Balance, end of year


1,340,998



1,436,329



1,549,548          69




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
  (13)
    Employee
    Profit-Sharing and Retirement Plan    (14)
    Earnings
    Per Share    Years Ended December 31,2008


2007


2006Numerator for basic and diluted EPS  net
    (loss)/income

$
(62,349
)

$
27,292


$
53,284Denominator for EPS  weighted average number of
    common shares outstanding*:Basic


30,838,361



30,654,058



27,512,023Effect of dilutive securities  restricted stock






907,693



53,430Diluted


30,838,361



31,561,751



27,565,453Earnings per common share*:Basic

$
(2.02
)

$
0.89


$
1.94Diluted

$
(2.02
)

$
0.86


$
1.93     *
    
    In accordance with SFAS No. 128, as a result of a net
    loss, basic and diluted common shares outstanding were equal for
    the twelve months ended December 31, 2008. 70




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
   (15)
    Income
    Taxes    Current


Deferred


TotalYear ended December 31, 2008U.S. Federal

$
(27,798
)

$
(2,388
)

$
(30,186
)State and Local


131



(10,086
)


(9,955
)Non-U.S.


1,169



(684
)


485$
(26,498
)

$
(13,158
)

$
(39,656
)Year ended December 31, 2007U.S. Federal

$
22,359


$
(6,909
)

$
15,450State and Local


8,475



(2,505
)


5,970Non-U.S.


1,404



(711
)


693$
32,238


$
(10,125
)

$
22,113Year ended December 31, 2006U.S. Federal

$
26,400


$
590


$
26,990State and Local


10,560



260



10,820Non-U.S.


1,075



(520
)


555$
38,035


$
330


$
38,365     2008


2007


2006Percentage





Percentage





Percentageof Pretax





of Pretax





of PretaxAmount


Earnings


Amount


Earnings


Amount


EarningsComputed expected tax provision

$
(35,702
)


(35.0
)%

$
17,292



35.0
%

$
32,077



35.0
%Non-U.S. tax
    rate differential


(99
)


(0.1
)


(70
)


(0.1
)


(80
)


(0.1
)State and local taxes, net of related Federal income tax benefit


(6,471
)


(6.3
)


3,881



7.9



7,033



7.7Permanent differences


2,616



2.5



1,010



2.0



(665
)


(0.7
)$
(39,656
)


(38.9
)%

$
22,113



44.8
%

$
38,365



41.9
%        71




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
    2008


2007Deferred tax assets:Employee compensation and benefits

$
15,815


$
13,257Legal contingencies


688



298Financial instruments owned, at fair value


5,062



State NOL carryover


5,437



Other


594



158Total deferred tax assets


27,596



13,713Deferred tax liabilities:Accumulated depreciation and amortization of furniture,
    equipment and leasehold improvements


(1,297
)


(849
)Financial instruments owned, at fair value






(1,818
)Total deferred tax liabilities


(1,297
)


(2,667
)Net deferred tax assets

$
26,299


$
11,046             AmountBalance as of January 1, 2008

$
7,251Additions based upon current year tax positions


356Additions for prior years tax positions


20Balance as of December 31, 2008

$
7,627  72




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
      2002-2007 2004-2005
  (16)
    Industry
    Segment Data  Disclosures about Segments of an Enterprise and Related
    Information
  (17)
    Recent
    Accounting Developments  Disclosures about Derivative Instruments and Hedging
    Activities  an amendment of FASB Statement
    No. 133
  (18)
    Net
    Capital Requirement  Rule 15c3-1
  December 31,2008Net Capital

$
101,324Excess net capital

$
93,794    73




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except share information)
  (19)
    Selected
    Quarterly Financial Information (Unaudited)    2008

First


Second


Third


FourthRevenues

$
74,852


$
71,171


$
53,635


$
42,559Net loss

$
(7,499
)

$
(9,738
)

$
(23,000
)

$
(22,112
)Earnings per share(*):Basic

$
(0.24
)

$
(0.32
)

$
(0.75
)

$
(0.71
)Diluted

$
(0.24
)

$
(0.32
)

$
(0.75
)

$
(0.71
)Average shares outstanding:Basic


30,735,039



30,800,637



30,794,738



31,021,496Diluted


30,735,039



30,800,637



30,794,738



31,021,496   2007

First


Second


Third


FourthRevenues

$
101,279


$
119,752


$
101,135


$
105,362Net income

$
7,720


$
10,395


$
5,535


$
3,642Earnings per share(*):Basic

$
0.25


$
0.34


$
0.18


$
0.12Diluted

$
0.24


$
0.33


$
0.18


$
0.11Average shares outstanding:Basic


30,640,736



30,603,734



30,665,945



30,704,979Diluted


31,525,629



31,543,189



31,546,276



31,734,882     *
    
    Summation of the quarters earnings per share may not equal
    the annual amounts due to the averaging effect of the number of
    shares outstanding throughout each respective year. 74




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##### Table of Contents



Item 9.
    Changes
    in and Disagreements With Accountants on Accounting and
    Financial Disclosure.    Item 9A.
    Controls
    and Procedures.          Item 9B.
    Other
    Information.   PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance.    Item 11.
    Executive
    Compensation.    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters.    Item 13.
    Certain
    Relationships and Related Transactions and Director
    Independence.    Item 14.
    Principal
    Accountant Fees and Services.   75




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.  Form 10-K:
    Form 10-K
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Managements Report on Internal Control over Financial
    Reporting


50Report of Independent Registered Public Accounting Firm


51Consolidated Statements of Financial Condition as of
    December 31, 2008 and 2007


53Consolidated Statements of Operations for the years ended
    December 31, 2008, 2007 and 2006


54Consolidated Statements of Changes in Stockholders Equity
    and Comprehensive Income for the years ended December 31,
    2008, 2007 and 2006


55Consolidated Statements of Cash Flows for the years ended
    December 31, 2008, 2007 and 2006


56Notes to Consolidated Financial Statements


57         page E-1 Form 10-K.
 76




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##### Table of Contents



SIGNATURES        By:
    /s/  John
    G. Duffy   Title:
    Chairman and Chief Executive Officer      Signature

Title/s/  John
    G. DuffyJohn
    G. Duffy

Director, Chairman and Chief Executive Officer (principal
    executive officer)/s/  Robert
    GiambroneRobert
    Giambrone

Chief Financial Officer (principal financial and accounting
    officer)/s/  Andrew
    M. SenchakAndrew
    M. Senchak

Director/s/  Thomas
    B. MichaudThomas
    B. Michaud

Director/s/  Daniel
    M. HealyDaniel
    M. Healy

Director/s/  Christopher
    M. CondronChristopher
    M. Condron

Director/s/  James
    K.SchmidtJames
    K.Schmidt

Director/s/  Michael
    J. ZimmermanMichael
    J. Zimmerman

Director  77




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##### Table of Contents



EXHIBIT INDEX  3
.1

Second Amended and Restated Certificate of Incorporation of KBW,
    Inc. (incorporated by reference to Exhibit 3.1 to the
    Registrants quarterly report on Form 10-Q with respect to
    the quarter ended September 30, 2007 filed on November 13,
    2007).3
.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).4
.1

Specimen Common Stock Certificate of KBW, Inc. (incorporated by
    reference to Exhibit 4.1 to the Registrants registration
    statement on Form S-1/A (No. 333-136509) filed on September 28,
    2006).4
.2

Second Amended and Restated Stockholders Agreement
    (incorporated by reference to Exhibit 4.1 to the
    Registrants quarterly report on Form 10-Q with respect to
    the quarter ended September 30, 2006 filed on December 15, 2006).10
.1

KBW, Inc. 2006 Equity Incentive Plan (incorporated by reference
    to Exhibit 10.4 to the Registrants quarterly report on
    Form 10-Q with respect to the quarter ended September 30, 2006
    filed on December 15, 2006).10
.2

Fully Disclosed Clearing Agreement, dated as of October 22,
    1992, between Pershing LLC and Keefe, Bruyette & Woods,
    Inc., as amended (incorporated by reference to Exhibit 10.3 to
    the Registrants registration statement on Form S-1/A (No.
    333-136509) filed on September 28, 2006).10
.3

Fully Disclosed Clearing Agreement, dated as of February 28,
    2005, between Fortis Securities LLC and Keefe, Bruyette &
    Woods, Inc. (incorporated by reference to Exhibit 10.4 to the
    Registrants registration statement on Form S-1/A (No.
    333-136509) filed on September 28, 2006).10
.4

Agreement of Lease, dated November 12, 2002, between the
    Equitable Life Assurance Society of the United States, ELAS
    Securities Acquisition Corp. and Keefe, Bruyette & Woods,
    Inc. (incorporated by reference to Exhibit 10.5 to the
    Registrants registration statement on Form S-1/A (No.
    333-136509) filed on September 28, 2006).10
.5

First Amendment to Lease, dated September 6, 2003, between the
    Equitable Life Assurance Society of the United States, ELAS
    Securities Acquisition Corp. and Keefe, Bruyette & Woods,
    Inc. (incorporated by reference to Exhibit 10.6 to the
    Registrants registration statement on Form S-1/A (No.
    333-136509) filed on September 28, 2006).10
.6

Second Amendment to Lease, dated September 6, 2004, between the
    Equitable Life Assurance Society of the United States, ELAS
    Securities Acquisition Corp. and Keefe, Bruyette & Woods,
    Inc. (incorporated by reference to Exhibit 10.7 to the
    Registrants registration statement on Form S-1/A (No.
    333-136509) filed on September 28, 2006).10
.7

Sublease between Keefe, Bruyette & Woods, Inc. and National
    Financial Partners Corp., dated as of August 31, 2007
    (incorporated by reference to Exhibit 10.1 to the
    Registrants current report on
    Form 8-K,
    filed on September 7, 2007).10
.8

KBW, Inc. Annual Incentive Plan (incorporated by reference to
    Exhibit 10.5 to the Registrants quarterly report on Form
    10-Q with respect to the quarter ended September 30, 2006 filed
    on December 15, 2006).10
.9

KBW, Inc. 2008 Employee Stock Purchase Plan (incorporated by
    reference to Exhibit 10.1 to the Registrants current
    report on 8-K filed June 9, 2008).10
.10

Form of Restricted Stock Award Agreement for Awards under the
    2006 Equity Incentive Plan in connection with the IPO
    (incorporated by reference to Exhibit 10.8 to the
    Registrants annual report on Form 10-K with respect to the
    year ended December 31, 2006, filed on March 30, 2007).10
.11

Form of Restricted Stock Award Agreement for February 2007
    awards under the 2006 Equity Incentive Plan (incorporated by
    reference to Exhibit 10.9  to the Registrants annual
    report on Form 10-K with respect to the year ended December 31,
    2006, filed on March 30, 2007).10
.12

Form of Restricted Stock Award Agreement for February 2008
    awards under the 2006 Equity Incentive Plan (incorporated by
    reference to Exhibit 10.10 to the Registrants annual
    report on Form 10-K with respect to the year ended December 31,
    2007, filed on February 28, 2008).10
.13*

Form of Restricted Stock Award Agreement for February 2009
    awards under the 2006 Equity Incentive Plan.10
.14*

Amended and Restated Employment Agreement with John G. Duffy and
    KBW, Inc., dated as of December 31, 2008. E-1




---



##### Table of Contents



10
.15*

Amended and Restated Employment Agreement with Thomas B. Michaud
    and KBW, Inc., dated as of December 31, 2008.10
.16*

Amended and Restated Employment Agreement with Andrew M. Senchak
    and KBW, Inc., dated as of December 31, 2008.10
.17*

Amended and Restated Change of Control Agreement with Robert
    Giambrone and KBW, Inc., dated as of December 31, 2008.10
.18*

Amended and Restated Change of Control Agreement with Mitchell
    B. Kleinman and KBW, Inc., dated as of December 31, 2008.11


Statement regarding computation of per share earnings. (The
    calculation of per share earnings is in Part II, Item 8,
    Note 14 to the Consolidated Financial Statements (Earnings Per
    Share) and is omitted here in accordance with Section(b)(11) of
    Item 601 of Regulation S-K).21
.1*

List of Subsidiaries of KBW, Inc.23
.1*

Consent of KPMG LLP.31
.1*

Certification of the Chief Executive Officer pursuant to
    Section 302 of the Sarbanes-Oxley Act of 2002.31
.2*

Certification of the Chief Financial Officer 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 contract or compensatory arrangement*
    
    Filed herewith E-2