KBW, Inc. Announces Record Fourth Quarter and Full Year 2006 Financial Results.

NEW YORK -- KBW, Inc. (NYSE: KBW), a full-service investment bank that specializes in the financial services sector, today announced financial results for the quarter and year ended December 31, 2006.

Highlights for the fourth quarter include:

* Basic earnings per share increased 238.5% to $0.88 compared to $0.26 for the fourth quarter of 2005. Diluted earnings per share increased 234.6% to $0.87 compared to $0.26 for the fourth quarter of 2005.

* Total revenues increased 31.9% to $120.2 million compared to $91.1 million for the fourth quarter of 2005.

* Investment banking revenues increased 69.4% to $67.2 million compared to $39.7 million for the fourth quarter of 2005.

* Commissions revenue increased 14.2% to $30.6 million compared to $26.8 million for the fourth quarter of 2005.

* Interest and dividend income increased 21.8% to $7.6 million compared to $6.2 million for the fourth quarter of 2005.

* Income before income taxes increased 233.5% to $43.6 million compared to $13.1 million for the fourth quarter of 2005.

* The effective tax rate decreased 2.2% to 41.7% from 43.9% for the fourth quarter of 2005.

* Net earnings increased 246.6% to $25.4 million compared to $7.3 million for the fourth quarter of 2005.

* After adjusting for initial public offering (IPO) restricted stock awards, non-GAAP net income and diluted earnings per share were $26.5 million and $0.90. A reconciliation between our GAAP results and non-GAAP measures is attached.

Highlights for the full year include:

* Basic earnings per share increased approximately 203.1% to $1.94 compared to $0.64 for the twelve months ended December 31, 2005. Diluted earnings per share increased 201.6% to $1.93 compared to $0.64 for the twelve months ended December 31, 2005.

* Total revenues increased 32.1% to $406.6 million compared to $307.9 million for the twelve months ended December 31, 2005.

* Investment banking revenues increased 40.6% to $210.0 million compared to $149.3 million for the twelve months ended December 31, 2005.

* Commissions revenue increased 21.1% to $116.6 million compared to $96.3 million for the twelve months ended December 31, 2005.

* The full year 2006 operating compensation ratio (GAAP compensation and benefits expense adjusted for IPO restricted stock awards divided by total revenues) was 52.8%. This compares to a compensation ratio of 60.9% in 2005. Not included in calculating this ratio for 2006 were restricted stock awards granted in February 2007 as part of year-end 2006 compensation.

* Non-compensation expenses were 24.2% of revenues compared to 29.0% for 2005.

* Income before income taxes increased 194.3% to $91.6 million compared to $31.1 million for the twelve months ended December 31, 2005.

* The effective tax rate decreased 2.2% to 41.9% from 44.1% for the year ended December 31, 2005.

* Net earnings increased 206.1% to $53.3 million compared to $17.4 million for the twelve months ended December 31, 2005.

* After adjusting for IPO restricted stock awards, non-GAAP net income and diluted earning per share were $54.3 million and $1.97. A reconciliation between our GAAP results and non-GAAP measures is discussed below.

* Return on equity was 18.3% compared to 6.6% in 2005.

"In 2006 we made significant progress across all areas of our business, recording our sixth consecutive year of record revenues," said John G. Duffy, Chairman and Chief Executive Officer of KBW. "Our singular focus is reaping the benefits of the growth opportunities in the U.S. and in Europe."

"During the past year we moved forward on several initiatives including our initial public offering, expansion of our international presence and growth in our other businesses. We have successfully deployed in Europe the business model that has been the foundation of our firm for many years. Our award-winning research team that covers more U.S. and European financial services companies than any other firm, combined with equity and fixed-income sales and trading, contributed substantially to KBW's performance in 2006. In addition, we enjoyed a record year in investment banking. Going forward, we expect to continue our strong commitment to our investment banking clients and investor customers in the U.S. and Europe," said Mr. Duffy.

Conference Call

A conference call with management discussion of financial results for the fourth quarter ended December 31, 2006 will be held February 20 at 9:00 a.m. eastern time, and can be accessed at [phone] (within U.S. and Canada)/[phone] (International) (code: 51491611). A replay of the call will be available approximately two hours post-call at [phone] (within U.S. and Canada)/[phone] (International) (code: 46826757). A live audio webcast and delayed replay will also be available under "Investor Relations" at http://www.kbw.com

About KBW

KBW, Inc. through its subsidiaries Keefe, Bruyette & Woods, Inc., Keefe, Bruyette & Woods Limited and KBW Asset Management, 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 Registration Statement on Form S-1 (File No. 333-136509), 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.

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Non-GAAP Financial Measures

We have reported in this press release our compensation expense, tax expense, net income and basic and diluted earnings per share on a non-GAAP basis for the full year 2006 and the fourth quarter 2006. The non-GAAP amount excluded was with respect to the amortization of stock compensation expense associated with the grant of IPO restricted stock awards to our employees on November 8, 2006.

The following provides details with respect to reconciling compensation expense, tax expense, net income and basic and diluted earnings per share on GAAP basis for the full year 2006 and the fourth quarter 2006 to the aforementioned captions on a non-GAAP basis in the same respective periods.

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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 IPO restricted stock awards in connection with our IPO.

Our management has utilized non-GAAP calculations of presented compensation expense, tax expense, net income and basic and diluted earnings per share that are adjusted in the manner presented above as an additional device to aid in understanding and analyzing our financial results for the full year and the fourth quarter of 2006. Specifically, 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. These periods did not in the past, and likely will not in the future include such substantial grants of restricted stock awards to employees. 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 of compensation expense, tax expense, net income and basic and diluted earnings per share 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 both our GAAP measures of compensation expense, tax expense, net income and basic and diluted earnings per share and the same respective non-GAAP measures of our financial performance should be considered together.

Further information regarding these non-GAAP financial measures will be included in our Annual Report on Form 10-K. Our 10-K will be 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 such report that we will file with the SEC 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.