NEW YORK (

TheStreet

) -- Shares of

Keefe, Bruyette & Woods

(KBW)

were climbing despite the niche-focused investment bank posting lower quarterly profit fueled by the continuing uncertainty in the financial sector.

KBW, which specializes in the financial services sector, reported net income of $3.8 million, or 11 cents a share, for the three months ending September 30, vs. $11.9 million, or 33 cent a share, in the comparable 2009 period.

KBW's net income for the second quarter was $8.2 million, or 22 cents a share.

Operating income, which is typically the comparable metric for analysts' estimates, fell a whopping 60% from the year-earlier quarter to $5.3 million, or 15 cents a share.

Analysts, on average, expected the investment bank to post a profit of 21 cents a share, according to

Thomson Reuters

.

"Although solidly profitable, the third quarter reflected continuing uncertainty in the financial sector as companies were challenged by regulatory and economic conditions," KBW's Chairman and CEO John G. Duffy said. "In particular, this quarter was impacted by an extended slow down in capital markets and trading. Offsetting these pressures was an improvement in the customer portion of our fixed income business."

KBW is the owner of several popular financial indexes, including the KBW

Bank Stock Index

( BKX), which tracks the performance of the 25 largest bank holding companies.

KBW's investment banking revenue, the largest contributor to overall revenue, totaled $38.4 million for the quarter, down 33% from a year earlier, primarily due to "fewer equity capital markets transactions" compared to record equity transactions a year earlier. The lower revenue was partially offset by higher M&A advisory fees, it said.

Commissions revenue sank 23% in the same period due to lower market trading volumes, LBW said. The firm's principal transactions revenue declined 30% to $16.7 million "reflecting relative stability in the third quarter of 2010 compared with the broad and significant recovery of markets in the third quarter of 2009," it said. Still principal transactions rose from the second quarter due to higher fixed income revenue, KBW noted.

Separately, KBW announced a 5 cent dividend for holders of its common stock. It also repurchased approximately $4 million, or 180,500 shares, during the third quarter. The average price per share repurchased was $22.19. KBW has $66.0 million remaining on this stock repurchase program, it said.

KBW shares rose marginally as the market opened. The stock is down 7% this year.

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski

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