Bank of America 2Q Profit Up 5 Percent

A Bank of America branch is seen at the Coolidge Corner in Brookline, Mass., in this July 19, 2006 file photo. Bank of America Corp. said Thursday, July 19, 2007 its second-quarter earnings rose 5 percent, as growth in capital markets activity and consumer fees offset an increase in credit losses. (AP Photo/Chitose Suzuki, file) (Chitose Suzuki - AP)

CHARLOTTE, N.C. -- Bank of America Corp. recorded another profitable quarter Thursday, but gave investors reason to worry as it fattened its provisions for loan losses, an indication it sees lending risks growing.

Bank of America, the No. 2 U.S. bank by assets, reported a 5 percent rise in earnings from growth in capital markets activity and consumer fees, offsetting an increase in credit losses.

But its provision for credit losses ballooned 79.2 percent to $1.81 billion, up from $1.24 billion in the first quarter and $1.01 billion in the second quarter of 2006. Net charge-offs, or bad loans, rose to $1.5 billion, compared with $1.43 billion in the first quarter and $1.02 billion in the year-ago quarter.

JPMorgan, the nation's third-largest bank, on Wednesday reported a 20 percent increase in second-quarter profit. The bank said it tripled the money it set aside in case its loans go sour.

Other banks this week, including Washington Mutual Inc. and Comerica Inc. reported similar trends. Citigroup, the nation's largest bank, and Charlotte-based Wachovia Corp. are expected to report results Friday.

Bank of America shares fell 9 cents to $49.27 Thursday.

The earnings news came as nervousness over shaky loans increased. Bear Stearns Cos. told clients Tuesday that a meltdown in the subprime mortgage market has made the assets from two of its flagship hedge funds, which were once worth $1.5 billion, almost worthless.

But Kenneth Lewis, Bank of America's chief executive, said "we're well positioned going into the second half of 2007, with additional upside in 2008."

And Bart Narter, a senior analyst with Celent, a Boston-based financial research and consulting firm, said, "I don't think the good times are over for banks because they are making it up in fees. They continue to gather new accounts and more accounts mean more fees."

Bank of America, based in Charlotte, credited the quarter's results to revenue increases in its three main businesses: consumer and small business banking, corporate and investment banking and wealth and investment management.

Bank of America generates more of its business domestically than its main rivals, New York-based banks Citigroup and JPMorgan.

But like its peers, Bank of America's second quarter results reflected the ongoing challenges in the loan environment.