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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, 2009
 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-T o o
  Regulation S-K Form 10-K Form 10-K. o
  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
   
 PageNumberPART IItem 1.


Business


1Item 1A.


Risk Factors


11Item 1B.


Unresolved Staff Comments


23Item 2.


Properties


23Item 3.


Legal Proceedings


23Item 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


46Item 8.


Financial Statements and Supplementary Data


48Item 9.


Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure


76Item 9A.


Controls and Procedures


76Item 9B.


Other Information


76PART IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


79Item 11.


Executive Compensation


79Item 12.


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


79Item 13.


Certain Relationships and Related Transactions
    and Director Independence


79Item 14.


Principal Accountant Fees and Services


79Item 15.


Exhibits and Financial Statement Schedules


80PART IVSignatures


81Exhibit Index


E-1EX-10.14:


FORM OF RESTRICTED STOCK AWARD AGREEMENTEX-10.15:


LONG TERM INCENTIVE PLANEX-10.16:


FORM OF LONG TERM INCENTIVE PLAN AWARD LETTEREX-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, 2009 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, and
    Equity and fixed income securities offerings.   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,        
    evaluating and recommending financial and strategic alternatives
    with respect to a sale,
    advising on the appropriate sale process,
    providing valuation analyses, 3




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




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Fixed Income Sales and Trading.
  sub-performing,
  Research
       5




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Number ofSector

CompaniesBanks and Thrifts Regional Banks and Thrifts


169Large Cap Banks and Thrifts


17Trust and Custody Banks


3Total


189Insurance Property Casualty Insurance


56Life Insurance


15Other Insurance


8Total


79Diversified Financials Equity REITs


53Specialty Finance


32Asset Managers


18Broker Dealers


18Mortgage Finance


14Exchange & Order Execution


11Processing/Business Information


8Financial Guarantors


6REOCs


6Homebuilders


3Capital/Derivative Markets


2Total


171Total U.S. Companies under coverage


439       sub-sector one-on-one
 6




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Asset
    Management
    Employees
    Competition
               7




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Regulation
  non-U.S. governmental
  Rule 15c3-1. Rule 15c3-1
  non-U.S. jurisdictions
   8




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non-U.S. governments, and/or 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 (60).
 9




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Andrew M. Senchak (62).
  Thomas B. Michaud (45).
  Robert Giambrone (55).
  Mitchell B. Kleinman (55).
 10




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Item 1A.
    Risk
    Factors.  Risks
    Related to Our Business
  Uncertain
    economic conditions have continued to adversely affect 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 continue to be adversely affected by continued
    uncertainties in valuations related to asset quality and
    creditworthiness, volatility in the equity markets and
    difficulties in obtaining 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
    volatile equity or debt markets.
    We may experience losses in securities trading and investment
    activities or as a result of write downs in the value of
    financial instruments that we own as a result of deteriorations
    in the businesses or creditworthiness of the issuers of such
    financial instruments.
    We may incur unexpected costs or losses as a result of the
    bankruptcy or other failure of companies for which we have
    performed sales and trading or investment banking services to
    honor ongoing obligations such as settlement obligations
    relating to securities transactions and indemnification or
    expense reimbursement agreements.
    Any plans for expansion outside of the United States of our
    client base or the services we provide, particularly, as a
    result of uncertainties in Europe, 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.
    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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Lack
    of sufficient liquidity or access to capital could impair our
    business and financial condition.
    Difficulty
    in determining the fair value of financial
    instruments.
        Our
    liquidity and profitability could be adversely affected by the
    actions and commercial soundness of other financial
    institutions.
    Our
    risk management policies and procedures may leave us exposed to
    unidentified or unanticipated risks.
   12




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




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Our
    ability to retain our professionals is critical to the success
    of our business, and our failure to do so may materially
    adversely affect our reputation, business and results of
    operations.
    We
    face strong competition, including from entities with
    significantly more financial and other resources.
       14




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The
    impact of the current market and regulatory environment on
    trading customers may adversely affect our sales and trading
    commission revenues.
      Pricing
    and other competitive pressures may impair the revenues and
    profitability of our sales and trading business.
     Risks Related to
    Our Industry,
   15




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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.
    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.
   17




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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.
     18




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Investments
    by our directors, officers, employees and our employee profit
    sharing retirement plan may conflict with the interests of our
    stockholders.
      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.
   19




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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.
    Future
    sales, or the possibility of future sales, of a substantial
    amount of our common stock could cause our stock price to
    decline.
         22




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form S-3,
  We
    have not historically paid any cash dividends.
    Item 1B.
    Unresolved
    Staff Comments.    Item 2.
    Properties.      Item 3.
    Legal
    Proceedings.     23




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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.      2009

2008High

Low

High

LowFourth Quarter

$
34.44


$
24.53


$
32.40


$
19.59Third Quarter


33.63



26.37



37.50



19.76Second Quarter


28.90



20.71



28.14



20.06First Quarter

$
23.28


$
14.20


$
29.66


$
18.63           Rule 10b-18(a)(3)
  Total Number of

Approximate DollarShares Purchased

Value of SharesTotal Number



as Part of Publicly

that May Yet Beof Shares

Average Price

Announced Plans

Purchased Under thePeriod

Purchased(1)(2)

per Share

or Programs

Plans or ProgramsOctober 1  October 31, 2009














November 1  November 30, 2009


286,277


$
28.24







December 1  December 31, 2009


14,448



17.30







Total


300,725


$
27.71







     (1)
    
    All shares purchased were other than as part of a publicly
    announced plan or program.(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,
    2009.
  Years Ended December 31,2009


2008


2007


2006


2005(dollars in thousands, except per share information)Revenues:Investment banking

$
160,450


$
163,664


$
226,464


$
210,026


$
149,332Commissions


142,015



192,752



165,803



116,625



96,301Principal transactions, net


63,611



(142,962
)


(7,520
)


45,773
(1)


36,568Interest and dividend income


10,524



24,687



37,612



26,920



17,984Investment advisory fees


2,826



1,197



1,751



5,036



3,843Other


7,728



2,879



3,418



2,206



3,838
(2)Total revenues


387,154



242,217



427,528



406,586



307,866Expenses:Compensation and benefits


236,159



226,311



257,070



216,518



187,428Occupancy and equipment


21,639



19,831



18,722



17,728



16,877Communications and data processing


28,464



27,743



24,283



19,465



18,526Brokerage and clearance


17,203



24,244



22,967



19,728



17,390Business development


14,328



16,115



16,601



13,218



13,141Interest


1,151



4,603



14,732



11,023



8,105Other


25,352



25,375



23,748



17,257



15,257Total non-compensation expenses


108,137



117,911



121,053



98,419



89,296Total expenses


344,296



344,222



378,123



314,937



276,724Income/(loss) before income taxes


42,858



(102,005
)


49,405



91,649



31,142Income tax expense/(benefit)


19,251



(39,656
)


22,113



38,365



13,735Net income/(loss)(3)

$
23,607


$
(62,349
)

$
27,292


$
53,284


$
17,407Earnings per share(3)(4)(5):Basic

$
0.66


$
(2.02
)

$
0.81


$
1.89


$
0.63Diluted

$
0.66


$
(2.02
)

$
0.81


$
1.89


$
0.63Weighted average number of common shares outstanding(4)(5):Basic


31,448,074



30,838,361



30,654,058



27,512,023



27,194,404Diluted


31,448,074



30,838,361



30,654,058



27,512,023



27,194,404Consolidated Statements ofFinancial Condition Data:Total assets

$
631,368


$
571,466


$
864,450


$
804,865


$
661,161Stockholders equity(3)

$
449,069


$
396,731


$
448,426


$
397,414


$
265,709Other Data (Unaudited):Book value per common share

$
14.60


$
13.30


$
15.31


$
13.59


$
10.13  26




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##### Table of Contents



(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 2005 include approximately $0.4 million
    in insurance recoveries and government grants relating to the
    World Trade Center attacks in 2001.(3)
    
    Prior to the date of the IPO (November 2006) and the
    termination of the 2005 amended and restated stockholders
    agreement, common stock was classified as a liability.(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)
    
    Basic and diluted common shares outstanding were equal in each
    respective period under the two-class method. Accordingly, prior
    years have been restated. 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
          Results
    of Operations
  Year
    Ended December 31, 2009 Compared with Year Ended
    December 31, 2008
  Overview
       29




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Year Ended December 31,


Period to Period2009


2008


$ Change


% Change(dollars in thousands)Revenues:Investment banking

$
160,450


$
163,664


$
(3,214
)


(2.0
)%Commissions


142,015



192,752



(50,737
)


(26.3
)Principal transactions, net


63,611



(142,962
)


206,573



N/MInterest and dividend income


10,524



24,687



(14,163
)


(57.4
)Investment advisory fees


2,826



1,197



1,629



136.1Other


7,728



2,879



4,849



168.4Total revenues


387,154



242,217



144,937



59.8Expenses:Compensation and benefits


236,159



226,311



9,848



4.4Occupancy and equipment


21,639



19,831



1,808



9.1Communications and data processing


28,464



27,743



721



2.6Brokerage and clearance


17,203



24,244



(7,041
)


(29.0
)Business development


14,328



16,115



(1,787
)


(11.1
)Interest


1,151



4,603



(3,452
)


(75.0
)Other


25,352



25,375



(23
)


(0.1
)Non-compensation expenses


108,137



117,911



(9,774
)


(8.3
)Total expenses


344,296



344,222



74



0.0Income/(loss) before income taxes


42,858



(102,005
)


144,863



N/MIncome tax expense/(benefit)


19,251



(39,656
)


58,907



N/MNet income/(loss)

$
23,607


$
(62,349
)

$
85,956



N/M
%     N/M  Not Meaningful
  2009 and
    2008 Non-GAAP Financial Measures
       30




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ReconciliationGAAP


Amount


Non-GAAP(dollars in thousands, except per share information)Year ended December 31, 2009:Compensation and benefits expense

$
236,159


$
(10,022
)(a)

$
226,137Income before income taxes

$
42,858


$
10,022
(a)

$
52,880Income tax expense

$
19,251


$
4,502
(b)

$
23,753Net income

$
23,607


$
5,520
(c)

$
29,127Compensation ratio(d):


61.0
%






58.4
%Earnings per share(e):Basic

$
0.66


$
0.15


$
0.81Diluted

$
0.66


$
0.15


$
0.81Weighted average number of common shares outstanding(e):Basic


31,448,074




(f)


31,448,074Diluted


31,448,074




(f)


31,448,074Year ended December 31, 2008:Compensation and benefits expense

$
226,311


$
(11,456
)(a)

$
214,855Loss before income taxes

$
(102,005
)


11,456
(a)

$
(90,549
)Income tax benefit

$
(39,656
)

$
4,454
(b)

$
(35,202
)Net loss

$
(62,349
)

$
7,002
(c)

$
(55,347
)Compensation ratio(d):


93.4
%






88.7
%Earnings per share(e):Basic

$
(2.02
)

$
0.23


$
(1.79
)Diluted

$
(2.02
)

$
0.23


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


30,838,361




(f)


30,838,361Diluted


30,838,361




(f)


30,838,361     (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)
    
    For year ended 2009 and 2008 compensation ratios were calculated
    by dividing compensation and benefits expense by total revenues
    of $387,154 and $242,217, 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. 31




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Revenues
  Investment
    Banking
    Commissions
  non-U.S. commissions
  Principal
    Transactions, Net
   32




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Interest
    and Dividend Income
    Investment
    Advisory Fees
    Other
    Expenses
  Compensation
    and Benefits
    Brokerage
    and Clearance
    Business
    Development
    Interest
    Income
    Tax Expense / (Benefit)
   33




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Year
    Ended December 31, 2008 Compared with Year Ended
    December 31, 2007
  Overview
          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



5.6Business development


16,115



16,601



(486
)


(2.9
)Interest


4,603



14,732



(10,129
)


(68.8
)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
)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
 34




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2008 and
    2007 Non-GAAP Financial Measures
    GAAP


Reconciliation Amount


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

$
226,311


$
(11,456
)(a)





$
214,855Loss before income taxes

$
(102,005
)

$
11,456
(a)





$
(90,549
)Income tax benefit

$
(39,656
)

$
4,454
(b)





$
(35,202
)Net loss

$
(62,349
)

$
7,002
(c)





$
(55,347
)Compensation ratio(d):


93.4
%










88.7
%Earnings per share(e):Basic

$
(2.02
)

$
0.23






$
(1.79
)Diluted

$
(2.02
)

$
0.23






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


30,838,361




(f)






30,838,361Diluted


30,838,361




(f)






30,838,361Year Ended 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(e):Basic

$
0.81


$
0.20






$
1.01Diluted

$
0.81


$
0.20






$
1.01Weighted average number of common shares outstanding(e):Basic


30,654,058




(f)






30,654,058Diluted


30,654,058




(f)






30,654,058     (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)
    
    For year ended 2008 and 2007 compensation ratios were calculated
    by dividing compensation and benefits expense by total revenues
    of $242,217 and $427,528, 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 common shares
    outstanding were not adjusted. 35




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##### Table of Contents



Revenues
  Investment
    Banking
  tm tm tm larger-than-average
  Commissions
    Principal
    Transactions, Net
    tm
 36




---



##### Table of Contents



tm
    Interest
    and Dividend Income
    Investment
    Advisory Fees
    Other
    Expenses
  Compensation
    and Benefits
    Occupancy
    and Equipment
    Communications
    and Data Processing
    Brokerage
    and Clearance
   37




---



##### Table of Contents



Interest
    Business
    Development
    Other
    Income
    Tax Benefit/Expense
    Liquidity
    and Capital Resources
         38




---



##### Table of Contents



form S-3
          Cash
    Flows
  Year ended December 31, 2009.
     39




---



##### Table of Contents



Year ended December 31, 2008.
      Year ended December 31, 2007.
      Critical
    Accounting Policies and Estimates
     40




---



##### Table of Contents



Fair
    Value of Financial Instruments
  tm Fair Value Measurements and
    Disclosures.
  Financial Instruments, instrument-by-instrument AICPA Audit and Accounting
    Guide  Brokers And Dealers In Securities
      Fair
    Value Hierarchy
   41




---



##### 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.             42




---



##### Table of Contents



Fair
    Value of Financial Instruments Control Process
    Income
    Taxes
    Income Taxes,
 43




---



##### Table of Contents



Contractual
    Obligations
    Payments due by PeriodTotal

2010

2011 - 2012

2013 - 2014

2015 and thereafterOperating lease obligations

$
93,734


$
15,022


$
29,469


$
28,268


$
20,975     Off-Balance
    Sheet Arrangements
  and/or
    Recently
    Issued Accounting Standards, Not Yet Adopted
  No. 2010-06 ,
    Improving Disclosures about Fair Value Measurements. No. 2010-06 Fair Value Measurements and
    Disclosures No. 2010-06 No. 2010-06.
  No. 2009-17, Improvements to Financial Reporting by Enterprises Involved
    with Variable Interest Entities No. 2009-17 Amendments to FASB Interpretation
    No. 46(R) No. 2009-17
 44




---



##### Table of Contents



No. 2009-17 No. 2009-17
  No. 2009-16, Accounting for Transfers of Financial Assets No. 2009-16 Accounting for Transfers of Financial
    Assets  an amendment of FASB Statement No. 140. No. 2009-16
 45




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##### 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

$
79,738


$
31,691


$
47,402Corporate and other debt

$
88,716


$
36,742


$
56,622Mortgage-backed securities

$
29,545


$



$
4,032Other investments

$
41,917


$
34,893


$
37,584Short Value:Equities

$
34,463


$
11,162


$
21,261Corporate debt

$
4,999


$



$
1,428U.S. Government and agency securities

$
8,495


$



$
1,963   Interest
    Rate Risk
    Credit
    Risk
   46




---



##### Table of Contents



Inflation
    Risk
    Operational
    Risk
   47




---



##### 



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


49Report of Independent Registered Public
    Accounting Firm


50Consolidated Statements of Financial Condition as
    of December 31, 2009 and 2008


52Consolidated Statements of Operations for the
    Years Ended December 31, 2009, 2008 and 2007


53Consolidated Statements of Changes in
    Stockholders Equity and Comprehensive Income for the Years
    Ended December 31, 2009, 2008 and 2007


54Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2009, 2008 and 2007


55Notes to Consolidated Financial Statements


56EX-10.14EX-10.15EX-10.16EX-21.1EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2   48




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##### Table of Contents



Managements
    Report on Internal Control over Financial Reporting      Internal Control  Integrated Framework
     49




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm     Internal Control  Integrated
    Framework
        Internal Control  Integrated Framework
    KPMG
    LLP
    50




---



##### Table of Contents



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




---



##### Table of Contents



KBW, INC.
    AND SUBSIDIARIESConsolidated Statements of Financial
    Condition
    December 31, 2009 and 2008
    (Dollars in thousands)
  2009


2008ASSETSCash and cash equivalents

$
203,180


$
194,981Financial instruments owned, at fair value:Equities


56,720



41,765Corporate and other debt


75,754



53,879Other investments


41,917



34,893174,391



130,537Receivables from clearing brokers


161,811



130,682Accounts receivable


28,703



19,391Income taxes receivable


1,129



33,270Furniture, equipment and leasehold improvements, at cost, less
    accumulated depreciation and amortization of $25,636 in 2009 and
    $21,546 in 2008


18,800



18,895Other assets


43,354



43,710Total assets

$
631,368


$
571,466LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Financial instruments sold, not yet purchased, at fair value:Equities

$
31,288


$
11,162Corporate debt


4,723



U.S. Government and agency securities


962



36,973



11,162Short-term borrowings






31,547Accounts payable, accrued expenses, and other liabilities


134,658



122,070Income taxes payable


10,668



9,956Total liabilities


182,299



174,735Stockholders equity:Preferred stock






Common stock


307



298Paid-in capital


161,168



137,618Retained earnings


298,626



275,019Notes receivable from stockholders


(609
)


(2,225
)Accumulated other comprehensive loss


(10,423
)


(13,979
)Total stockholders equity


449,069



396,731Total liabilities and stockholders equity

$
631,368


$
571,466    52




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##### Table of Contents



KBW Inc.
    and Subsidiaries
 Consolidated
    Statements of Operations
    Years Ended December 31, 2009, 2008 and 2007
    (Dollars in thousands, except per share information)  2009


2008


2007Revenues:Investment banking

$
160,450


$
163,664


$
226,464Commissions


142,015



192,752



165,803Principal transactions, net


63,611



(142,962
)


(7,520
)Interest and dividend income


10,524



24,687



37,612Investment advisory fees


2,826



1,197



1,751Other


7,728



2,879



3,418Total revenues


387,154



242,217



427,528Expenses:Compensation and benefits


236,159



226,311



257,070Occupancy and equipment


21,639



19,831



18,722Communications and data processing


28,464



27,743



24,283Brokerage and clearance


17,203



24,244



22,967Business development


14,328



16,115



16,601Interest


1,151



4,603



14,732Other


25,352



25,375



23,748Total expenses


344,296



344,222



378,123Income / (loss) before income taxes


42,858



(102,005
)


49,405Income tax expense / (benefit)


19,251



(39,656
)


22,113Net income / (loss)

$
23,607


$
(62,349
)

$
27,292Earnings per common share:Basic (Note 12)

$
0.66


$
(2.02
)

$
0.81Diluted (Note 12)

$
0.66


$
(2.02
)

$
0.81Weighted average number of common shares outstanding:Basic (Note 12)


31,448,074



30,838,361



30,654,058Diluted (Note 12)


31,448,074



30,838,361



30,654,058    53




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##### Table of Contents



KBW, INC.
    AND SUBSIDIARIES
 Consolidated
    Statements of Changes in Stockholders Equity and
    Comprehensive Income
    Years ended December 31, 2009, 2008 and 2007
    (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, 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 net tax benefit related to stock-based awards










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






















(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 stock-based awards










882















882Repayment of notes receivable from stockholders


















2,969







2,969Balance at December 31, 2008






298



137,618



275,019



(2,225
)


(13,979
)


396,731Net income














23,607











23,607Other comprehensive income, currency translation adjustment






















3,556



3,556Total comprehensive income


























27,163Amortization of stock-based compensation










36,646















36,646Cancellation of 590,841 shares of restricted stock in
    satisfaction of withholding tax requirements






(6
)


(14,843
)














(14,849
)Purchase of 14,448 shares of common stock










(250
)














(250
)Issuance of 1,521,170 shares of common stock






15



32,697















32,712Restricted stock units converted










(2,939
)














(2,939
)Stock-based awards vested










(29,569
)














(29,569
)Excess net tax benefit related to stock-based awards










1,808















1,808Repayment of notes receivable from stockholders


















1,616







1,616Balance at December 31, 2009

$



$
307


$
161,168


$
298,626


$
(609
)

$
(10,423
)

$
449,069     Number of SharesPar Value

December 31,

Authorized

Issued

Outstanding$0.01


2009



10,000,000







$0.01


2008



10,000,000







$0.01


2007



10,000,000







     Number of SharesPar Value

December 31,

Authorized

Issued*

Outstanding*$0.01


2009



140,000,000



30,749,697



30,749,697$0.01


2008



140,000,000



29,833,816



29,833,816$0.01


2007



140,000,000



29,289,013



29,289,013     (*)
    
    These share amounts exclude legally vested restricted stock
    units.   54




---



##### Table of Contents



KBW, INC.
    AND SUBSIDIARIES
 Consolidated
    Statements of Cash Flows
    Years ended December 31, 2009, 2008 and 2007
    (Dollars in thousands)  2009


2008


2007Cash flows from operating activities:Net income / (loss)

$
23,607


$
(62,349
)

$
27,292Adjustments to reconcile net income / (loss) to net cash
    provided by operating activities:Non-monetary transaction










(6,518
)Amortization of stock-based compensation


36,646



30,540



20,564Depreciation and amortization


4,822



4,801



4,895Deferred income tax (benefit) expense


5,237



(13,158
)


(10,125
)(Increase) decrease in operating assets:Financial instruments owned, at fair value


(43,427
)


251,537



(45,038
)Securities purchased under resale agreements






23,846



38,473Receivables from clearing brokers


(30,833
)


59,828



(5,522
)Accounts receivable


(8,943
)


969



4,544Income taxes receivable


32,162



(33,270
)


Other assets


(4,744
)


972



(9,038
)Increase (decrease) in operating liabilities:Financial instruments sold, not yet purchased, at fair value


25,734



(65,679
)


(34,131
)Securities sold under repurchase agreements






(94,784
)


10,248Short-term borrowings


(31,547
)


(33,552
)


36,599Accounts payable, accrued expenses and other liabilities


11,024



(47,035
)


5,592Income taxes payable


708



2,987



(9,735
)Net cash provided by operating activities


20,446



25,653



28,100Cash flows from investing activities:Purchase of furniture, equipment and leasehold improvements


(4,730
)


(3,719
)


(2,545
)Net cash used in investing activities


(4,730
)


(3,719
)


(2,545
)Cash flows from financing activities:Issuance of shares of common stock


205



142



Purchase of shares of common stock


(250
)






Cancellation of restricted stock in satisfaction of withholding
    tax requirements


(14,849
)


(7,895
)


(1,965
)Excess net tax benefit related to stock-based awards


1,808



882



1,202Repayment of notes receivable from stockholders


1,616



2,969



3,384Net cash (used in) / provided by financing activities


(11,470
)


(3,902
)


2,621Currency adjustment:Effect of exchange rate changes on cash


3,953



(17,409
)


535Net increase in cash and cash equivalents


8,199



623



28,711Cash and cash equivalents at the beginning of the year


194,981



194,358



165,647Cash and cash equivalents at the end of the year

$
203,180


$
194,981


$
194,358Supplemental disclosures of cash flow information:Cash paid during the year for:Income taxes

$
17,412


$
1,419


$
47,546Interest

$
1,245


$
6,075


$
14,800    55




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (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
    Codificationtm tm
      (b)  Principles
    of Consolidation
    Consolidation
 56




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (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 instrument-by-instrument AICPA Audit and Accounting
    Guide  Brokers And Dealers In Securities
 57




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
  No. 2009-12, Investments in Certain Entities That Calculate Net Asset
    Value per Share (or Its Equivalent No. 2009-12
  (f)  Securities
    Purchased Under Resale Agreements and Securities Sold Under
    Repurchase Agreements
      (g)  Receivables
    From Clearing Brokers
    (h)  Furniture,
    Equipment and Leasehold Improvements
    (i)  Revenue
    Recognition
  Investment
    Banking
     58




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
     
    Underwriting revenues are recognized on trade date, net of
    related syndicate expenses, at the time the underwriting is
    completed. In syndicated underwritten transactions, management
    estimates the Companys share of transaction-related
    expenses incurred by the syndicate, and the Company recognizes
    revenue net of such expense. On final settlement, the Company
    adjusts these amounts to reflect the actual transaction-related
    expenses and resulting underwriting fee.
    Private placement revenues are recorded when the services
    related to the underlying transaction are completed under the
    terms of the engagement. This is generally the closing date of
    the transaction.    Commissions
    Principal
    transactions
    Interest
    and dividend income
    Investment
    advisory fees
  12-month
  (j)  Stock-Based
    Compensation
    (k)  Income
    Taxes
   59




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
    Income Taxes
  (l)  Earnings
    Per Common Share (EPS)
    Earnings Per Share
  (m)  Foreign
    Currency Translation
    (n)  Contributions
  Other Expenses
  (3)
    Financial
    Instruments    and/or
 60




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
                   61




---



##### Table of Contents



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


Redemption

NoticeType of Investment

Fair Value


Commitments


Frequency

PeriodLong/short hedge funds(a)

$
12,115


$



Monthly

30 DaysPublic/private equity funds(b)


29,802



22,941


n/a

n/a$
41,917


$
22,941     (a)
    
    This category includes investments in hedge funds that invest
    primarily in domestic long/short positions in equity securities
    and various derivatives, including options on securities and
    stock index options with respect to companies in the financial
    services sector. Management of these funds also has the ability
    to invest in foreign equities and fixed income securities. The
    fair values of investments in this category have been estimated
    using the net asset value per share, or equivalent, of the
    investments. Investments in this category can be redeemed
    monthly; however, the general partner may impose a
    gate for any withdrawal over 20% of the total fund
    net asset value.(b)
    
    This category includes several funds that invest primarily in
    domestic public and private companies operating in the financial
    services sector. Management of these funds also have the ability
    to invest in foreign public and private equities, debt financial
    instruments, warrants, hybrid securities and membership
    interests in the financial services sector. The fair values of
    investments in this category have been estimated using asset
    values based on capital statements provided by the general
    partner, updated, as necessary, for capital contributions and
    distributions and changes in market conditions up to the
    reporting date. These investments generally cannot be redeemed,
    unless approved by the general partners. Upon liquidation of the
    underlying investments prior to the life expectancy / maturity
    of the funds, management of the funds can elect to make
    distributions to the limited partners. The time horizon for such
    distributions is at the discretion of the general partners but
    should not exceed the time horizon of the funds life
    expectancy. It is estimated that these investments would be
    liquidated approximately ten years following the initial
    investment date, some with options to extend for up to a two
    year period, ranging from 2010  2020. Additional
    expenses, such as legal and administrative associated with the
    final liquidation can be incurred. Therefore, it is possible
    that upon final liquidation of the investments, the final funds
    distributed could be different from the estimated value of the
    investment. However, these differences are not expected to be
    material.   62




---



##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
   Assets at
    Fair Value as of December 31, 2009
  Level 1


Level 2


Level 3


TotalFinancial instruments owned, at fair value:Equities

$
40,197


$
22


$
15,873


$
56,092Corporate and other debt:Corporate debt


9,354



38,604



10,000



57,958CDOs






5,448



1



5,449Other debt
    obligations(1)










12,347



12,347Total corporate and other debt


9,354



44,052



22,348



75,754Other
    investments(2)










41,917



41,917Total non-derivative trading assets


49,551



44,074



80,138



173,763Derivative financial instruments


628











628Total financial instruments owned

$
50,179


$
44,074


$
80,138


$
174,391     (1)

    
    Consists of bank and insurance company trust preferred and
    capital securities.(2)

    
    Consists of limited and general partnership interests.  Liabilities
    at Fair Value as of December 31, 2009
  Level 1


Level 2


Level 3


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

$
31,191


$



$



$
31,191Corporate debt






4,723







4,723US Government and agency securities


962











962Total non-derivative trading liabilities


32,153



4,723







36,876Derivative financial instruments


97











97Total financial instruments sold, not yet purchased

$
32,250


$
4,723


$



$
36,973   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  63




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##### Table of Contents



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


Level 2


Level 3


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

$
10,701


$



$



$
10,701Total non-derivative trading liabilities


10,701











10,701Derivative financial instruments


461











461Total financial instruments sold, not yet purchased

$
11,162


$



$



$
11,162         Level 3
    Financial Assets
  Changes in UnrealizedTotal Gains











Gains and (Losses)Balance as of


and (Losses)





Transfers in


Balance As Of


Included in EarningsDecember 31,


(Realized and


Purchases/


(out) of


December 31,


Related to Assets Still2008


Unrealized)


(Sales), Net


Level 3


2009


Held at Reporting DateEquities

$
14,722


$
(13
)

$
400


$
764


$
15,873


$
989Corporate and other debt:Corporate debt


1,581



(1,581
)


10,000







10,000



(1,581
)CDOs


44



7



(50
)






1



2Other debt obligations


31,063



2,925



(21,641
)






12,347



16,740Total corporate and other debt


32,688



1,351



(11,691
)






22,348



15,161Other investments


34,893



5,507



1,517







41,917



6,264Total Level 3 financial assets

$
82,303


$
6,845


$
(9,774
)

$
764


$
80,138


$
22,414Changes In UnrealizedGains and (Losses)Balance as of


Total Gains and





Transfers


Balance as of


Included in EarningsDecember 31,


(Losses) (Realized


Purchases/


In (out) of


December 31,


Related to Assets Still2007


and 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
)  64




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
  and/or
        (4)
    Short-Term
    Borrowings    (5)
    Commitments
    and Contingencies  (a)  Leases
      Lease PaymentsYear:2010

$
15,0222011


14,9452012


14,5242013


14,3202014


13,948Thereafter


20,975Total

$
93,734    65




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
   (b)  Litigation
  Contingencies
        (c)  Investment
    Commitments
   66




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per 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, 2009:Purchased options/warrants

$
8,285


$
380


$
628Written options/warrants

$
630


$
511


$
97Short futures contracts

$
6,136


$



$
December 31, 2008:Purchased options

$
7,721


$
557


$
843Written options

$
6,100


$
344


$
461Short futures contracts

$



$



$
  67




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
    Year EndedType of Instrument

December 31, 2009Equities

$
10,730Corporate and other debt


27,600Mortgage-backed securities


18,807Other investments


6,474Total

$
63,611     (7)
    Concentrations
    of Credit Risk    and/or
  (8)
    Notes
    Receivable from Stockholders    (9)
    Non-Monetary
    Transaction    (10)
    Stock-Based
    Compensation  2009 Incentive Compensation Plan:
 68




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##### Table of Contents



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

Average Grant DateDecember 31, 2009

Fair ValueRestricted stock awards:Share balance, beginning of year


3,127,852


$
24.59Grants


2,229,232


$
19.83Forfeited


(282,565
)

$
22.27Vested


(1,218,427
)

$
24.27Share balance, end of year


3,856,092


$
22.11   Year Ended December 31,2009

2008

2007Restricted stock awards:Share balance, beginning of year


3,127,852



3,023,825



2,592,100Grants


2,229,232



1,137,111



626,393Forfeited


(282,565
)


(263,807
)


(144,643
)Vested


(1,218,427
)


(769,277
)


(50,025
)Share balance, end of year


3,856,092



3,127,852



3,023,825         Restricted Stock Units:
  69




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
  Year Ended December 31,2009

2008

2007Restricted stock units:Balance, beginning of year


1,340,998



1,436,329



1,549,548Grants










Forfeited










Converted and redeemed


(294,550
)


(95,331
)


(113,219
)Balance, end of year


1,046,448



1,340,998



1,436,329       (11)
    Employee
    Profit-Sharing and Retirement Plan   70




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
   (12)
    Earnings
    Per Share    Years Ended December 31,2009


2008


2007Net income / (loss)

$
23,607


$
(62,349
)

$
27,292Less: Allocation of earnings to participating securities


2,890







2,489Net income / (loss) applicable to common shareholders

$
20,717


$
(62,349
)

$
24,803Weighted average number of common share outstanding
    (1)(2):Basic


31,448,074



30,838,361



30,654,058Effect of dilutive securities  restricted stock










Diluted


31,448,074



30,838,361



30,654,058Earnings per common
    share(1)(2):Basic

$
0.66


$
(2.02
)

$
0.81Diluted

$
0.66


$
(2.02
)

$
0.81     (1)
    
    Participating securities in the form of unvested share based
    payment awards amounted to weighted average shares of 4,386,772,
    3,640,270, and 3,075,834 for the years ended December 31,
    2009, 2008 and 2007, respectively.(2)
    
    Basic and diluted common shares outstanding were equal for the
    periods presented under the two-class method. All prior periods
    have been restated.  (13)  Income
    Taxes
    Current


Deferred


TotalYear ended December 31, 2009U.S. Federal

$
12,460


$
166


$
12,626State and Local


1,940



4,897



6,837Non-U.S.


(386
)


174



(212
)$
14,014


$
5,237


$
19,251Year 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
)

$
22,113  71




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##### Table of Contents



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


2008


2007Percentage





Percentage





Percentageof Pretax





of Pretax





of PretaxAmount


Earnings


Amount


Earnings


Amount


EarningsComputed expected tax provision

$
15,000



35.0
%

$
(35,702
)


(35.0
)%

$
17,292



35.0
%Non-U.S. tax
    rate differential


(1,141
)


(2.7
)


(99
)


(0.1
)


(70
)


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


4,849



11.3



(6,471
)


(6.3
)


3,881



7.9Permanent differences


543



1.3



2,616



2.5



1,010



2.0$
19,251



44.9
%

$
(39,656
)


(38.9
)%

$
22,113



44.8
%           2009


2008Deferred tax assets:Employee compensation and benefits

$
17,940


$
15,815Legal contingencies


543



688Financial instruments owned, at fair value






5,062State NOL carryover


2,921



5,437Benefit from uncertain tax positions


2,326



2,390Other


1,140



594Total deferred tax assets


24,870



29,986Deferred tax liabilities:Accumulated depreciation and amortization offurniture, equipment and leasehold improvements


(879
)


(1,297
)Financial instruments owned, at fair value


(788
)


Total deferred tax liabilities


(1,667
)


(1,297
)Net deferred tax assets

$
23,203


$
28,689  72




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##### Table of Contents



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


2008


2007Balance at January 1

$
7,627


$
7,251


$
6,899Additions based upon current year tax positions


1,046



356



794Additions for prior years tax positions


1,777



20



100Reduction for prior years tax positions


(1,595
)






(17
)Settlements


(130
)






(325
)Lapse of statute


(1,350
)






(200
)Balance at December 31

$
7,375


$
7,627


$
7,251           2006-2008 2002-2007 2004-2007
 73




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
   (14)
    Industry
    Segment Data  Segment
    Reporting
  (15)
    Recent
    Accounting Developments  No. 2010-06 ,
    Improving Disclosures about Fair Value Measurements. No. 2010-06 Fair Value Measurements and
    Disclosures No. 2010-06 No. 2010-06.
  No. 2009-17, Improvements to Financial Reporting by Enterprises Involved
    with Variable Interest Entities No. 2009-17 Amendments to FASB Interpretation
    No. 46(R) No. 2009-17 No. 2009-17 No. 2009-17
  No. 2009-16, Accounting for Transfers of Financial Assets No. 2009-16 Accounting for Transfers of
    Financial No. 2009-16
  (16)
    Net
    Capital Requirement  Rule 15c3-1
 74




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##### Table of Contents



KBW, INC.
    and SUBSIDIARIES
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Dollars
    in thousands, except per share information)
    December 31,2009Net Capital

$
111,804Excess

$
103,103     (17)
    Selected
    Quarterly Financial Information (Unaudited)    2009

First

Second

Third

FourthRevenues

$
72,276


$
105,096


$
122,639


$
87,144Net income

$
730


$
7,213


$
11,894


$
3,771Earnings per share*:Basic

$
0.02


$
0.20


$
0.33


$
0.11Diluted

$
0.02


$
0.20


$
0.33


$
0.11Average shares outstanding:Basic


31,354,507



31,405,229



31,410,337



31,619,722Diluted


31,354,507



31,405,229



31,410,337



31,619,722   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     *
    
    Summation of the quarters revenues, net income and
    earnings per share may not equal the annual amounts due to
    rounding or the averaging effect of the number of shares
    outstanding throughout each respective year. 75




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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.  Rule 13a-15
  Rule 13a-15(e)
  Rule 13a-15(f)
  Rules 13a-15(f) 15d-15(f)
  Item 9B.
    Other
    Information.    Adoption
    of Long Term Incentive Program
    Grant of
    Long Term Incentive Awards to Messrs. Duffy, Senchak and
    Michaud
     76




---



##### Table of Contents



Percentage ofActual Cumulative Adjusted EPS for Performance Cycle

LTIP Awards EarnedMaximum or above

200%Target

100%Threshold or Below Threshold

0%       LTIP
    Awards for Each of Messrs. Duffy, Senchak and Michaud
    for Each Performance Cycle
  LTIP Award Amount atAttainment of Target

Year of PotentialPerformance Cycle

Cumulative Adjusted EPS

Payout2010

$333,333

20112010-2011

$666,667

20122010-2012

$1,000,000

2013     
    the impact of all performance based awards during the relevant
    performance cycle, including awards under the LTIP, for any
    Named Executive Officer;
    the effect of any tax, assessment or similar charge enacted or
    implemented by a government or governmental agency which is not
    of general application to corporate taxpayers in the relevant
    jurisdiction; and
    any quantifiable Non-GAAP (or other applicable accounting
    standard) adjustment to net income for the relevant performance
    cycle reported in a public filing with the SEC prior to the
    determination of the percentage of LTIP Award earned for such
    performance cycle.  Form 10-K.
  Establishment
    of Annual Performance Goals Applied to 2009 Restricted Stock
    Bonus Awards
    Previously Granted to Named Executive Officers
  Form 8-K
 77




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##### Table of Contents




    the impact of all performance based awards during the relevant
    performance period or cycle for any Named Executive Officer;
    the effect of any tax, assessment or similar charge enacted or
    implemented by a government or governmental agency which is not
    of general application to corporate taxpayers in the relevant
    jurisdiction; and
    any quantifiable Non-GAAP (or other applicable governing
    accounting standard) adjustment to income for the relevant
    performance period or cycle reported in a public filing with the
    SEC prior to the determination of the achievement of the
    performance criteria for such performance period or cycle.  Determination
    of 2010 Cash Bonus and Related Performance Goals for Named
    Executive Officers
      
    the impact of all performance based awards during the relevant
    performance period or cycle for any Named Executive Officer;
    the effect of any tax, assessment or similar charge enacted or
    implemented by a government or governmental agency which is not
    of general application to corporate taxpayers in the relevant
    jurisdiction; and
    any quantifiable Non-GAAP (or other applicable governing
    accounting standard) adjustment to income for the relevant
    performance period or cycle reported in a public filing with the
    SEC prior to the determination of the achievement of the
    performance criteria for such performance cycle.   78




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##### Table of Contents



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.   79




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##### Table of Contents



PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules.  (a)
    Documents filed as part of this
    Form 10-K:  1.
    Consolidated Financial Statements  Form 10-K
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
  Managements Report on Internal Control over
    Financial Reporting


49Report of Independent Registered Public
    Accounting Firm


50Consolidated Statements of Financial Condition as
    of December 31, 2009 and 2008


52Consolidated Statements of Operations for the
    Years Ended December 31, 2009, 2008 and 2007


53Consolidated Statements of Changes in
    Stockholders Equity and Comprehensive Income for the Years
    Ended December 31, 2009, 2008 and 2007


54Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2009, 2008 and 2007


55Notes to Consolidated Financial Statements


56   2.
    Financial Statement Schedules    3.
    Exhibits  page E-1 Form 10-K.
 80




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##### Table of Contents



SIGNATURES        By:
    /s/  John
    G. Duffy         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  81




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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

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
.4

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
.5

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
.6

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
.7

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
.8

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

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
.10

Form of Restricted Stock Award Agreement for February 2008
    awards to employees 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
.11

Form of Restricted Stock Award Agreement for February 2009
    awards to employees under the 2006 Equity Incentive Plan
    (incorporated by reference to Exhibit 10.13 to the
    Registrants annual report on
    Form 10-K
    with respect to the year ended December 31, 2008, filed on
    February 27, 2009).10
.12

KBW, Inc. 2009 Incentive Compensation Plan (incorporated by
    reference to Exhibit 10.1 to the Registrants current
    report on
    Form 8-K
    filed on June 10, 2009).10
.13

Form of Restricted Stock Award Agreement for February 2010
    awards to Messrs. Duffy, Michaud, Senchak, Kleinman and
    Giambrone (the Named Executive Officers) under the
    2009 Incentive Compensation Plan (incorporated by reference to
    Exhibit 10.1 to the Registrants current report on
    Form 8-K/A
    filed on February 10, 2010).10
.14*

Form of Restricted Stock Award Agreement for February 2010
    awards to employees other than the Named Executive Officers
    under the 2009 Incentive Compensation Plan. E-1




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##### Table of Contents



10
.15*

Long Term Incentive Plan (LTIP) under the KBW, Inc.
    2009 Incentive Compensation Plan, effective as of
    February 25, 2010.10
.16*

Form of LTIP Award Letter by and between KBW, Inc. and each of
    Messrs. Duffy, Senchak and Michaud, dated as of
    February 25, 2010.10
.17

Employment Agreement by and between John G. Duffy and KBW, Inc.,
    dated as of February 1, 2010 (incorporated by reference to
    Exhibit 10.2 to the Registrants current report on
    Form 8-K/A
    filed on February 10, 2010).10
.18

Employment Agreement by and between Thomas B. Michaud and KBW,
    Inc., dated as of February 1, 2010 (incorporated by
    reference to Exhibit 10.3 to the Registrants current
    report on
    Form 8-K/A
    filed on February 10, 2010).10
.19

Employment Agreement by and between Andrew M. Senchak and KBW,
    Inc., dated as of February 1, 2010 (incorporated by
    reference to Exhibit 10.4 to the Registrants current
    report on
    Form 8-K/A
    filed on February 10, 2010).10
.20

Amended and Restated Change of Control Agreement by and between
    Robert Giambrone and KBW, Inc., dated as of December 31,
    2008 (incorporated by reference to Exhibit 10.17 to the
    Registrants annual report on
    Form 10-K
    with respect to the year ended December 31, 2008, filed on
    February 27, 2009).10
.21

Amended and Restated Change of Control Agreement by and between
    Mitchell B. Kleinman and KBW, Inc., dated as of
    December 31, 2008 (incorporated by reference to
    Exhibit 10.17 to the Registrants annual report on
    Form 10-K
    with respect to the year ended December 31, 2008, filed on
    February 27, 2009).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