KBW, Inc. Announces Record Third Quarter 2009 Revenues and 2010 Asia Expansion

John G. Duffy, Chairman and Chief Executive Officer, said "Our results for the first nine months of 2009 reflect a record number of capital markets transactions as select financial companies have recapitalized, in many cases positioning themselves to take advantage of potential future consolidation opportunities. This trend began in the second quarter and accelerated in the third. While cash equity commissions are lower in comparison to the first nine months of last year, commissions trends improved during the quarter, compared to the first half of this year. Fixed income results continued to improve, benefiting from our investment in talent made earlier in the year. The nine-month results demonstrate the strength of our specialist model, which positioned our Company to assist our clients as the markets for financial services companies have improved."

"We are pleased to announce our decision to expand our specialist business model into Asia with the formation of a subsidiary based in Hong Kong which is expected to be operational early in 2010 when a core of experienced Asia market professionals will be joining us. Asian financials are an increasingly important part of the global financial services economy. This subsidiary will be fully integrated with our other business units in the U.S. and Europe; enabling us to provide sales, trading and research on Asian financial companies globally. We will also offer Hong Kong based capital markets services to corporate clients in Asia."

Highlights for the quarter include:

-- Investment banking revenue increased $15.5 million, or 36.6%, to $57.8 million compared to $42.3 million for the second quarter of 2009, primarily due to a record number of equity capital markets transactions that were completed in the third quarter, breaking the previous record set in the second quarter. Compared to the third quarter of 2008, total investment banking revenue increased $11.7 million, or 25.5%.

-- Principal transactions, net revenue of $23.7 million resulted primarily from improving fixed income revenues and market conditions and was slightly higher than the second quarter's total of $23.6 million.

-- Commissions revenue increased $0.7 million, or 2.1%, to $36.6 million compared to $35.9 million for the second quarter of 2009, primarily due to higher commissions revenue from European equity securities boosted by higher market valuation of financial services stocks.

-- Operating compensation and benefits ratio of 58.0% on a non-GAAP basis (GAAP compensation and benefits expense adjusted for the 2006 initial public offering restricted stock awards) resulted in an expense of $71.1 million, an increase of 23.8% compared to $57.5 million for the third quarter of 2008 and an increase of 12.8% compared to $63.1 million for the second quarter of 2009, primarily reflecting higher revenues. GAAP compensation and benefits expense was $73.8 million, an increase of 22.4% compared to $60.3 million for the third quarter of 2008 and an increase of 12.7% compared to $65.5 million for the second quarter of 2009.

-- Non-compensation expenses decreased $4.2 million, or 13.2%, compared to $31.5 million for the third quarter of 2008, primarily due to decreases in brokerage and clearance and other expenses. Non-compensation expenses were $27.3 million, an increase of $1.3 million, or 5.0%, compared to $26.0 million for the second quarter of 2009, primarily due to increases in brokerage and clearance and business development expenses.

-- As of September 30, 2009, stockholders' equity, which was all tangible, amounted to $443.0 million and preliminary book value per share was $14.62.

Highlights for the nine months include:

-- Investment banking revenue was $127.0 million compared to $136.4 million for the first nine months of 2008, a decrease of 6.9%, on lower M&A and advisory revenues offset by a substantial increase in capital markets transaction revenue.

-- Principal transactions, net resulted in revenue of $51.4 million compared to a loss of $113.0 million for the first nine months of 2008. The return to a net gain in the current period reflects the strong results of our customer fixed income business, the absence of significant negative valuation adjustments on certain financial instruments owned and the improved equity trading environment compared to the same period in 2008.

-- Commissions revenue was $108.5 million compared to $152.9 million for the first nine months of 2008, a decrease of 29.1%, primarily due to lower commission revenue on European equity securities.

-- Operating compensation and benefits expense on a non-GAAP basis was $177.6 million compared to $168.9 million for the first nine months of 2008. The non-GAAP operating compensation ratio was 59.2%. GAAP compensation and benefits expense was $185.0 million compared to $177.3 million for the first nine months of 2008.

-- Non-compensation expenses decreased $10.8 million, or 12.1%, to $78.0 million compared to $88.7 million for the first nine months of 2008.

KBW, Inc. expects to file its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission on or about November 9, 2009.

About KBW

KBW, Inc. through its subsidiaries Keefe, Bruyette & Woods, Inc., Keefe, Bruyette & Woods Limited and KBW Asset Management, Inc. is a full service investment bank specializing in the financial services industry.

Statements in this press release that are not statements of historical or current fact constitute forward-looking statements. In some cases, you can identify these statements by words such as "may", "might", "will", "should", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict", "potential", or "continue", the negative of these terms and other comparable terminology. Such forward-looking statements, which are based on various underlying assumptions and expectations and are subject to risks, uncertainties and other unknown factors, may include projections of our future financial performance based on our growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events, and there are or may be important factors that could cause our actual results to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. These factors include, but are not limited to, those discussed under the caption "Risk Factors" in our annual report on Form 10-K , which is available at the Securities and Exchange Commission website at www.sec.gov. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statement to reflect circumstances or events after the date of this press release.

KBW, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share information)
(unaudited)
                                                          Three Months Ended                              Nine Months Ended
                                                          Sept 30,       June 30,       Sept 30,          Sept 30,        Sept 30,
                                                          2009           2009           2008              2009            2008
Revenues:
Investment banking                                     $  57,785      $  42,313      $  46,042         $  126,958     $   136,382
Commissions                                               36,595         35,852         54,527            108,466         152,894
Principal transactions, net                               23,675         23,580         (53,836    )      51,371          (112,973   )
Interest and dividend income                              2,655          2,037          5,891             6,430           20,351
Investment advisory fees                                  341            320            222               974             815
Other                                                     1,588          994            789               5,812           2,189
                  Total revenues                          122,639        105,096        53,635            300,011         199,658
Expenses:
Compensation and benefits                                 73,819         65,479         60,318            184,965         177,251
Occupancy and equipment                                   5,567          5,442          5,297             16,168          14,579
Communications and data processing                        7,399          7,242          7,290             21,301          20,632
Brokerage and clearance                                   4,939          3,602          6,039             12,423          19,079
Business development                                      4,427          3,213          5,054             10,672          12,971
Interest                                                  135            57             871               361             4,115
Other                                                     4,829          6,452          6,902             17,058          17,373
                  Non-compensation expenses               27,296         26,008         31,453            77,983          88,749
                  Total expenses                          101,115        91,487         91,771            262,948         266,000
                  Income / (loss) before income taxes     21,524         13,609         (38,136    )      37,063          (66,342    )
Income tax expense / (benefit)                            9,630          6,396          (15,136    )      17,226          (26,105    )
                  Net income / (loss)                  $  11,894      $  7,213       $  (23,000    )   $  19,837      $   (40,237    )
Earnings per share*:
Basic                                                  $  0.33        $  0.20        $  (0.75      )   $  0.55        $   (1.31      )
Diluted                                                $  0.33        $  0.20        $  (0.75      )   $  0.55        $   (1.31      )
Weighted average number of common
shares outstanding*:
Basic                                                     31,410,337     31,405,229     30,794,738        31,390,229      30,776,870
Diluted                                                   31,410,337     31,405,229     30,794,738        31,390,229      30,776,870

*Unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents are treated as a separate class of securities in calculating earnings per share. The impact to basic earnings per share for the three and nine months ended September 30, 2009 and for the three months ended June 30, 2009 was a reduction of $0.05, $0.08 and $0.03 per share, respectively. The impact to diluted earnings per share for the three and nine months ended September 30, 2009 and for the three months ended June 30, 2009 was a reduction of $0.03, $0.05 and $0.02 per share, respectively. Basic and diluted common shares outstanding are equal for each respective period as the inclusion of incremental participating securities would be anti-dilutive. There was no impact on basic or diluted earnings per share amounts for the three and nine months ended September 30, 2008.

Non-GAAP Financial Measures

We have reported in this press release our compensation and benefits expense, income / (loss) before income taxes, income tax expense / (benefit), net income / (loss), compensation ratio and basic and diluted earnings per share on a non-GAAP basis for the three months ended September 30, 2009 and 2008 and June 30, 2009 and the nine months ended September 30, 2009 and 2008. The non-GAAP amounts exclude compensation expense related to the amortization of IPO restricted stock awards granted in November 2006. Our management utilizes these non-GAAP calculations in understanding and analyzing our financial results. Our management believes that the non-GAAP measures provide useful information by excluding certain items that may not be indicative of our core operating results and business outlook. Our management believes that these non-GAAP measures will allow for a better evaluation of the operating performance of our business and facilitate meaningful comparison of our results in the current period to those in prior periods and future periods. Our reference to these non-GAAP measures should not be considered as a substitute for results that are presented in a manner consistent with GAAP. These non-GAAP measures are provided to enhance investors' overall understanding of our current financial performance.

A limitation of utilizing these non-GAAP measures is that the GAAP accounting effects of these events do in fact reflect the underlying financial results of our business and these effects should not be ignored in evaluating and analyzing our financial results. Therefore, management believes that our GAAP measures of compensation and benefits expense, income / (loss) before income taxes, income tax expense / (benefit), net income / (loss), compensation ratio and basic and diluted earnings per share and the same respective non-GAAP measures of our financial performance should be considered together.

We expect to grant restricted stock awards and other share-based compensation in the future. We do not expect to make any such substantial grants to employees outside of our regular compensation and hiring process, as we did when we granted the restricted stock awards in connection with our IPO.

The following provides details with respect to reconciling compensation and benefits expense, income / (loss) before income taxes, income tax expense / (benefit), net income / (loss), compensation ratio and basic and diluted earnings per share on a GAAP basis for the three months ended September 30, 2009 and 2008 and June 30, 2009 and the nine months ended September 30, 2009 and 2008 to the aforementioned captions on a non-GAAP basis.

                                      GAAP                 Reconciliation            Non-GAAP
                                      (dollars in thousands, except per share information)
Three Months Ended September 30,
2009:
Compensation and benefits expense     $   73,819           $   (2,689 )    (a)   $   71,130
Income before income taxes            $   21,524           $   2,689       (a)   $   24,213
Income tax expense                    $   9,630            $   1,136       (b)   $   10,766
Net income                            $   11,894           $   1,553       (c)   $   13,447
Compensation ratio (d)                    60.2       %                               58.0       %
Earnings per share (e):
                  Basic               $   0.33             $   0.04              $   0.37
                  Diluted             $   0.33             $   0.04              $   0.37
Weighted average number of
common shares outstanding (e):
                  Basic                   31,410,337           -           (f)       31,410,337
                  Diluted                 31,410,337           -           (f)       31,410,337
Three Months Ended June 30, 2009:
Compensation and benefits expense     $   65,479           $   (2,421 )    (a)   $   63,058
Income before income taxes            $   13,609           $   2,421       (a)   $   16,030
Income tax expense                    $   6,396            $   878         (b)   $   7,274
Net income                            $   7,213            $   1,543       (c)   $   8,756
Compensation ratio (d)                    62.3       %                               60.0       %
Earnings per share (e):
                  Basic               $   0.20             $   0.05              $   0.25
                  Diluted             $   0.20             $   0.05              $   0.25
Weighted average number of
common shares outstanding (e):
                  Basic                   31,405,229           -           (f)       31,405,229
                  Diluted                 31,405,229           -           (f)       31,405,229
Three Months Ended September 30,
2008:
Compensation and benefits expense     $   60,318           $   (2,843 )    (a)   $   57,475
(Loss) / income before income taxes   $   (38,136    )     $   2,843       (a)   $   (35,293    )
Income tax (benefit) / expense        $   (15,136    )     $   1,145       (b)   $   (13,991    )
Net (loss) / income                   $   (23,000    )     $   1,698       (c)   $   (21,302    )
Compensation ratio (d)                    112.5      %                               107.2      %
Earnings per share (e):
                  Basic               $   (0.75      )     $   0.06              $   (0.69      )
                  Diluted             $   (0.75      )     $   0.06              $   (0.69      )
Weighted average number of
common shares outstanding (e):
                  Basic                   30,794,738           -           (f)       30,794,738
                  Diluted                 30,794,738           -           (f)       30,794,738

Nine Months Ended September 30,
2009:
Compensation and benefits expense      $ 184,965           (7,412 )  (a)      $ 177,553
Income before income taxes             $ 37,063            7,412     (a)      $ 44,475
Income tax expense                     $ 17,226            3,445     (b)      $ 20,671
Net income                             $ 19,837            3,967     (c)      $ 23,804
Compensation ratio (d)                   61.7       %                           59.2       %
Earnings per share (e):
                  Basic                $ 0.55              0.11               $ 0.66
                  Diluted              $ 0.55              0.11               $ 0.66
Weighted average number of
common shares outstanding (e):
                  Basic                  31,390,229        -         (f)        31,390,229
                  Diluted                31,390,229        -         (f)        31,390,229
Nine Months Ended September 30,
2008:
Compensation and benefits expense      $ 177,251           (8,389 )  (a)      $ 168,862
(Loss) / income before income taxes    $ (66,342    )      8,389     (a)      $ (57,953    )
Income tax (benefit) / expense         $ (26,105    )      3,301     (b)      $ (22,804    )
Net (loss) / income                    $ (40,237    )      5,088     (c)      $ (35,149    )
Compensation ratio (d)                   88.8       %                           84.6       %
Earnings per share (e):
                  Basic                $ (1.31      )      0.17               $ (1.14      )
                  Diluted              $ (1.31      )      0.17               $ (1.14      )
Weighted average number of
common shares outstanding (e):
                  Basic                  30,776,870        -         (f)        30,776,870
                  Diluted                30,776,870        -         (f)        30,776,870

(a)  The non-GAAP adjustment represents the pre-tax expense with respect
     to the amortization of the IPO restricted stock awards granted to
     employees in November 2006.
(b)  The non-GAAP adjustment with respect to income tax expense /
     (benefit) represents the elimination of the tax expense / (benefit)
     resulting from the amortization of the IPO restricted stock awards
     in the period.
(c)  The non-GAAP adjustment with respect to net income / (loss) was the
     after-tax amortization of the IPO restricted stock awards in the
     period.
(d)  Compensation ratios were calculated by dividing compensation and
     benefits expense by total revenues in each respective period.
(e)  Basic and diluted common shares outstanding are equal for each
     respective period as the inclusion of incremental participating
     securities was anti-dilutive.
(f)  Both the basic and diluted weighted average number of common shares
     outstanding were not adjusted.

Further information regarding these non-GAAP financial measures is included in our annual report on Form 10-K, which is available to the public at the Securities and Exchange Commission's (SEC) website at http://www.sec.gov and at our website at http://www.kbw.com. You may also read and copy this report at the SEC's public reference room located at 100 F Street, N.E., Washington, D.C. 20549, U.S.A. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room.

SOURCE: KBW, Inc.

Investors: 
KBW Investor Relations 
Alan Oshiki, 866-529-2339 
or 
Media: 
Intermarket Communications 
Neil Shapiro, 212-754-5423