Merger charges and losses from the restructuring of its bond portfolio drove BB&T Corp.'s third-quarter profits down 71%, to $49.3 million, the company said Thursday.

Excluding the charges, profits rose 16.3%, to $225 million, and earnings per share of 56 cents matched the consensus expectation of Wall Street analysts.

BB&T said its return on equity on an operating basis was 20.25%, compared with 19.35% in last year's third quarter. Operating return on assets was 1.61%, versus 1.49%. "We continue to achieve healthy core earnings growth despite the impact of rising interest rates on our margin," said John A. Allison, chairman and chief executive officer.

Analysts said they were pleased with credit quality at the $56.7 billion-asset banking company in Winston-Salem, N.C. Other southeastern banking companies, including SunTrust Banks Inc. in Atlanta, were forced to classify more loans as nonperforming during the quarter.

BB&T said its loan-loss provision of $24 million was down $1.4 million from last year's third quarter. Nonperforming assets were 0.28% of total assets, up slightly but still less than half the average of its peers, according to chief financial officer Scott Reed. Net chargeoffs were 0.23%, also less than half the industry average, he said.

"Asset quality was very good compared to the industry," said David West of Davenport & Co. "Strong credit culture has always been a hallmark of BB&T. That's important in this environment."

BB&T warned Wall Street in July that it would have losses from selling interest rate-sensitive, fixed-income securities - mostly collateralized mortgage obligations and mortgage-backed securities - and replacing them with more liquid "agency" bonds, from issuers like Fannie Mae and Freddie Mac. The portfolio restructuring prompted a $117.8 million charge, but Mr. Reed said the move has already paid off. "We now have an unrealized gain of $37.5 million" on the $5.8 billion securities portfolio, he said.

BB&T has been a hyperactive acquirer in the past 10 years, buying 47 thrifts, 46 insurance agencies, and 13 nonbanks. It closed another deal during the quarter, the $1 billion purchase of One Valley Bancorp of West Virginia, requiring a $57.9 million merger charge.

The company has three more deals pending and shows no sign of letting up. "We are buying banks and thrifts in our contiguous markets, all in the Southeast and Mid-Atlantic," Mr Reed said. "We think we're pretty good at executing these deals, getting the cost savings and revenue enhancements," he said.

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