Bank of America Corp. (BAC), the No. 3 U.S. bank,Wednesday said quarterly profit rose 41 percent, better than expected, reflecting the acquisition of FleetBoston Financial Corp. (FBF) and strength in consumer and commercial banking.

The Charlotte, N.C.-based company said second-quarter net income rose to $3.85 billion, or $1.86 per share, from $2.74 billion, or $1.80 per share, a year earlier.

Analysts polled by Reuters Estimates on average had forecast profit of $1.74 per share.

"They blew away earnings forecasts, but I was disappointed because securities gains accounted for 38 cents per share of profit," said Hilary Hayes, who helps invest $4 billion at Victory SBSF Capital Management in New York. "That suggests a lower quality of earnings."

The bank realized $795 million of securities gains as it positioned its balance sheet for rising interest rates.

But Hayes said that "the core business seems to be performing well." Victory sold the bank's shares last month.

Shares of Bank of America fell 0.9 percent in early trade.

Revenue rose 35 percent to $13 billion in the quarter. Lending income climbed 41 percent to $7.58 billion and fee income was up 28 percent to $5.44 billion, both driven by the $48 billion Fleet purchase that was completed on April 1.

Consumer and small-business banking generated half of Bank of America's profit and 55 percent of its revenue, earning $1.91 billion on revenue of $7.15 billion.

Bank of America said it added a net 740,000 savings accounts and 575,000 checking accounts and is on pace to add more than 2 million of each in 2004. It opened 1.5 million new credit card accounts.

Bank of America's acquisition of FleetBoston resulted in a company with about $1.04 trillion in assets, and 5,790 banking offices in 29 states.

The bank's shares were down 58 cents to $84.55 in early trading. Through Tuesday, they had risen 6 percent this year.

Results included pre-tax charges of $125 million, or 4 cents per share, tied to Fleet.

Chief Executive Kenneth Lewis said the merger integration is ahead of schedule, and resulted in $206 million of cost savings. The bank expects to save $1.38 billion overall. It said it has eliminated roughly 2,000 of the 12,500 jobs, or 7 percent, it plans to cut by 2006.

Results also included a $300 million charge for litigation costs, including $69 million to settle a class-action lawsuit over the bank's role in Enron Corp.'s collapse.

Noninterest expense, such as salaries and equipment, rose 42 percent to $7.2 billion.

After buying Fleet, Bank of America reorganized its business segments.

Commercial banking earned $642 million on revenue of $1.74 billion. Wealth and investment management, which includes private banking, mutual funds, brokerage and New York Stock Exchange (search) specialist operations, earned $392 million on revenue of $1.51 billion.

Corporate and investment banking earned $429 million on revenue of $2.63 billion. Bank of America ranked 10th in stock and bond underwriting and reported fees, Thomson Financial said. Trading profit more than quadrupled to $413 million.

The bank set aside $789 million for bad loans, up 2 percent. Net charge-offs rose 7 percent to $829 million, while nonperforming assets fell 28 percent to $3.18 billion.

Loans rose 38 percent to $498.5 billion, and deposits rose 36 percent to $575.4 billion.