When a pair of Rhode Island banks in adjoining markets announced a deal in November to merge, a couple of very familiar players in merger-and-acquisition circles were at the table opposite one another.

Advising Washington Trust Bancorp Inc. of Westerly on its proposed acquisition of First Financial Corp. were investment bankers from Keefe, Bruyette & Woods Inc. — in most years the leader in community banking M&A assignments. Its closest competitor, Sandler O'Neill & Partners LP, advised Providence-based First Financial.

As much as announcements about new hires and lease agreements, the $39 million deal seemed to say that the two investment banking firms — which suffered devastating losses in the Sept. 11 attack on the World Trade Center — were still very much in the M&A game. Indeed, if a spate of recently announced deals is any indication, prospects are good that Keefe Bruyette and Sandler will maintain their positions as top-ranked advisers to community banks.

Though the firms had to scramble to recover information, talks that had begun well before Sept. 11 never subsided, said John C. Warren, the chairman and chief executive officer of $1.4 billion-asset Washington Trust. He said Keefe Bruyette's "strength is so deep that they will continue to be the outstanding Wall Street firm to the banking industry."

Without question, both firms still face major challenges. Among them: setting up new offices in a rush, hiring people fast, integrating them into tight-knit organizations, calling on banks to develop new business, and — perhaps most significant — dealing with anguish that will not go away soon.

"A lot of people are afraid of being in Manhattan," said Jimmy Dunne, who assumed the title of senior managing principal at Sandler after Herman Sandler's death in the attack. "A lot of people are afraid of all the things normal people would be afraid of."

But even after losing 133 employees — 67 of 220 people at Keefe Bruyette and 66 of 171 at Sandler — the firms have kept deals on track and have participated in a number of debt and equity underwritings. Research and trading activity was slower to achieve pre-attack levels, but both firms have returned to publishing research reports and making markets in bank stocks.

Keefe Bruyette, founded in 1962, had its principal offices on the 88th and 89th floors of the trade center's Tower 2, 13-year-old Sandler occupied the 104th floor.

Their casualties were heaviest among traders and research analysts, whose jobs required them to be at their desks first thing in the morning. (The dead included Christopher M. Duffy, 23, an assistant equity trader at Keefe Bruyette, where his father, John G., is the chief executive officer.)

With the notable exception of Christopher Quackenbush, the head of mergers and acquisitions at Sandler, few investment bankers at either firm were killed.

The firms were far and away the leading M&A advisers to community banks in 2001. Keefe Bruyette advised on 36 transactions through Dec. 26, with a total value of $6.29 billion, according to SNL Securities LC of Charlottesville, Va. Sandler advised on 16 deals worth $2.6 billion.

Keefe Bruyette and Sandler hold leading positions in raising debt and equity capital for community banks. Both have made markets in hundreds of Nasdaq bank stocks and have small asset management businesses specializing in financial services stocks.

Keefe Bruyette has always had the higher-profile research department. Though research does not produce revenue directly, it is regarded as crucial to getting investment banking business from institutional investors.

Sandler has a large business in advising banks on their bond portfolios and in executing bond trades.

Both firms have made tremendous strides in rebuilding their businesses. Just the same, people at both said the effort is still daunting.

Sitting in Sandler's temporary quarters almost three months after the attacks, Mr. Dunne said: "There are unimaginable difficulties — from concentration to grief, anxiety, and loss of short-term memory at times. All the things that accompany a tragedy of massive proportions are here."

In addition to those personal issues are the business costs of replacing staff members with specialized skills and the seemingly endless frustrations associated with losing papers and telephone numbers and dealing with unfamiliar e-mail, phone messaging, and computer systems.

Keefe Bruyette did not make markets in over-the-counter stocks for nearly three months. Sandler, which operated longer in temporary quarters, said it would not resume OTC trading until moving into new offices this month. It is, however, trading bonds and listed stocks.

Sandler's Mr. Dunne downplayed the hiatus, noting that trading is not guaranteed to make money. But John Duffy, Keefe Bruyette's CEO, provided a measure of its importance to his firm. Equity commissions, which are partly generated by OTC trading, typically account for about 35% of its revenue, he said. Proprietary trading produces about 15% of revenue.

Still, both firms could write primers on how to rebound from a disaster.

After the attacks, most of Sandler's staff regrouped at Banc of America Securities' office in midtown Manhattan. A contingent also moved in with the investment banking firm Gleacher & Co. LLC.

At both locations employees pitched in on jobs they do not normally do. For example, Joel Comer, in fixed-income securities sales, took over the fixed-income trading desk, because all the traders had been killed. He was still working on the desk into December, though several positions had been filled.

Sandler's research was put on the back burner for nine weeks, freeing analysts to help out wherever they could. The firm focused on completing investment banking deals that were already in the works, keeping in touch with clients, hiring, and preparing to move into new quarters.

Most of Keefe Bruyette's staff crowded into the law offices of Wachtell, Lipton, Rosen & Katz. Assisting in unfamiliar areas quickly became the norm there too. Thomas Michaud, the vice chairman and head of trading, proofread research reports on the train home in the evening to keep publication close to schedule on a quarterly directory of data on more than 200 bank stocks.

The top business priorities for Keefe Bruyette in the early months were rebuilding its research staff, which had lost its director and 16 others, and finding a new headquarters, Mr. Duffy said. In October it announced that it had hired Michael Corasaniti, a portfolio manager at Neuberger Berman LLC, as head of research - but not before asking major clients for their opinion of him.

Coming as far as quickly as both firms have is a story of pluck, competitors and clients' good will, and a solid financial position to help weather disaster, among other things.

"Maybe it's a great 'game face,' but people I have dealt with at both firms have taken the approach that the best way to get past this and honor the memory of people they lost is to keep pushing the firms forward, to stay focused on the work," said Lawrence M.F. Spaccasi, a lawyer at Muldoon, Murphy & Faucette LLP in Washington.

Gritty determination alone, however, would not be enough to recover from the losses that Keefe Bruyette and Sandler sustained. Wall Street firms and large regional banks, which they do not typically serve, went out of their way to give them new business. FleetBoston Financial Corp., for example, asked both to manage $25 million pieces of a $1 billion senior note offering in mid-November, though it would not normally do that type of business with such small firms.

"We wanted to support them in the aftermath of Sept. 11," a Fleet spokesman said.

Peter Wirth, a member of Keefe Bruyette's corporate finance team, added that community banks delayed securities offerings when his firm needed extra time to participate.

Some observers say that the devastation — unspeakable as it was — could have been worse finacially for the firms if more investment bankers, who generate the highest-margin business at both firms, had been killed, or if the slump on Wall Street had not freed up a large talent pool. And if M&A activity had been more robust, the firms might have had more trouble staying on top of deals in progress.

Strong capital positions also helped the firms get back on their feet. Keefe Bruyette's equity equaled 66% of assets on Sept. 30, according to a report filed with the New York Stock Exchange. Sandler's equity was 71% of assets at the end of 2001, according to a company report.

Before the attack "it was getting to the point where we might be considered overcapitalized," said Keefe Bruyette's Mr. Duffy. "We're glad we have it."

As privately held businesses, Keefe Bruyette and Sandler do not disclose earnings, and neither would provide details about how Sept. 11 affected them financially.

Mr. Duffy did say his firm would distribute about $43 million in capital to families of shareholders who died, leaving some $107 million with the company. He said it had insurance coverage in excess of the about $15 million in losses it sustained in leasehold improvement and office equipment and furnishings.

Fred Price, Sandler's chief operating officer, said physical losses would exceed insurance coverage by $2 million to $5 million. That would come out of partnership capital, which stood at $56 million in December 2000.

Because earnings are routinely uneven, measuring lost income is difficult under any circumstance. On the surface, however, both firms look strongest through the prism of M&A deals. Several announced before Sept. 11 were completed or still moving along without a hitch.

"We have not seen a significant drop-off in their ability to deliver," said Robert T. Kenney, the chairman and chief executive of American Financial Holdings Inc. in New Britain, Conn. With Keefe Bruyette advising, his company announced in July that it would acquire American Bank of Connecticut in Waterbury. American Bank was advised by Sandler. The deal was expected to be completed this month.

Completing deals that were announced before Sept. 11 was not awfully difficult, bankers said, because lawyers do most of the work after an agreement is reached.

The bigger test will be cooking up more such deals and corporate finance business. Mr. Duffy acknowledged that in the first months after the attacks his bankers were not doing much of their usual calling on banks; they were busy with funerals and memorials, as well as with completing transactions in progress and rebuilding files.

Trading, which generates commission income from institutional investors and helps support stock issued by investment banking clients, took a much bigger hit at both firms. Not only did many traders perish, but trading depends far more than investment banking on telecommunications and computer systems.

Though both firms were again trading exchange-listed equities and bonds almost as soon as financial markets reopened on Sept. 17, neither would say how much volume they handled. They had similar-size Nasdaq trading operations: Keefe Bruyette made a market in 258 stocks in August, trading 26.5 million shares, according to Nasdaq data; Sandler made a market in 327 stocks that month, trading 26.5 million shares.

Keefe Bruyette resumed Nasdaq trading on Dec. 6, trading in about 125 stocks from its new offices at 787 Seventh Ave. in New York. Sandler planned to start up again this month after moving into new space at 919 Third Ave.

The firms' future depend less on completing investment banking transactions and rebuilding trading and research operations than on getting new business. The challenge could be especially great for Sandler, where Mr. Quackenbush had an important sales role.

"Every day, even prior to Sept. 11, you had to roll that rock up the hill," Mr. Dunne said.

Though some bank executives have long-term relationships with a particular investment banker, others are happy to shop around when each need arises. Similarly, institutional investors have plenty of sources for ideas.

But Keefe Bruyette's and Sandler's reputations are strong enough that clients will probably stick with them, according to client bankers, rival investment bankers, and lawyers who regularly represent community banks.

"As long as people are convinced they still have the ability to execute, they will be able to continue to do a good business," said Rick E. Maples, the director of financial institutions investment banking at Stifel, Nicolaus & Co. Inc. in St. Louis.

In a business where it is difficult to compare one provider with another in objective terms, Keefe Bruyette and Sandler win kudos from community bankers again and again for their knowledge of the banking industry and their commitment to service.

David Kalkbrenner, the president and chief executive officer of Greater Bay Bancorp in Palo Alto, Calif., said Mr. Price at Sandler has demonstrated that commitment with actions that went well beyond the call of duty.

Mr. Price was scheduled to fly to California on Nov. 12 and attend a meeting the following day of a Greater Bay board committee. But New York's airports were closed when an American Airlines jetliner crashed in Queens shortly after takeoff, killing the 260 people aboard. Mr. Price hopped a train to Philadelphia, where he caught a plane to San Francisco despite widespread fears that the crash had been the result of sabotage.

"If Fred said, 'Could we do it by phone?' we would have said, 'Sure, that's fine,' " Mr. Kalkbrenner said.

But other problems for Sandler and Keefe Bruyette pale before the psychological toll, whose consequences may not be felt for some time.

A can-do spirit pervades both firms, where people speak of honoring their lost colleagues through the success of their businesses. Mr. Dunne, however, acknowledged in late November that people can put in 14-hour days for just so long. Some will burn out from the stress of working in a Manhattan high-rise, he said, or any number of other difficulties.

"Not everyone will be able to do this," he said. "It's unrealistic to think that's a possibility."

Mr. Stoneman is a freelance writer in Albany, N.Y.