Bank of America set aside $13.38 billion for bad loans for a second straight quarter, and net charge-offs totaled $8.7 billion, up 25 percent from the prior three-month period.

Total reserves increased $4.63 billion to $35.78 billion, and nonperforming assets surged 21 percent to $30.98 billion.

“It was expected to be difficult in the quarter, and it is,” said Richard Bove, an analyst at Rochdale Securities in Lutz, Florida.

Credit cards were a big trouble spot. The bank said it is not collecting payments on 11.73 percent of its $169.8 billion card portfolio, up from 8.62 percent three months earlier.

“We have a really ugly economic backdrop,” Michael Holland, a money manager at Holland & Co in New York, said on Reuters Television. “Those numbers aren’t going to go away soon.”

Still, Lewis said the bank expects to boost reserves more slowly, as consumer charge-offs perhaps peak around year end.

The bank announced results just before Citigroup Inc, whose difficulties are considered more severe, posted a quarterly loss excluding a big gain from a brokerage joint venture with Morgan Stanley.

Goldman Sachs Group Inc and JP Morgan Chase & Co posted better-than-expected results earlier this week. Like JP Morgan, Bank of America said it has no material exposure to struggling business lender CIT Group Inc.

In afternoon trading, Bank of America shares fell 29 cents, or 2.2 percent, to $12.88 on the New York Stock Exchange.

But many of the Bank’s problems relate to its takeover of Merrill, after less than 48 hours of negotiations.

Lewis considered scrapping the deal as Merrill’s losses soared, but completed it after then-U.S. Treasury Secretary Henry Paulson threatened to oust management, fearing a cancellation would threaten the financial system.

According to The Wall Street Journal, regulators have placed Bank of America under special secret oversight to address problems with risk and liquidity management.

Shareholders in April stripped Lewis of his chairman role, and Bank of America has since installed several directors with banking or regulatory experience.

Congress, meanwhile, is investigating whether Lewis withheld information about Merrill’s problems from investors.

Regulators have barred Bank of America from repaying its $45 billion of bailout money from the Troubled Asset Relief Program, and in May ordered it to build a $33.9 billion buffer to cope with a possible $136.6 billion of losses through 2010.

The bank said it is in early talks with the government about repaying TARP funds, preferably “sooner rather than later” according to Lewis.

Despite the problems, Chief Financial Officer Joe Price told reporters on a conference call that Bank of America is ahead of schedule in realizing $7 billion of merger savings and has made the “lion’s share” of a potential 35,000 job cuts.

He expects within 30 days to resolve whether the bank owes anything under an agreement for the government to share losses on $118 billion of assets. The bank said the agreement, part of a January bailout, was never signed and is not needed.

Price also said the bank is moving into the “contract phase” in its efforts to sell its Columbia asset management unit, and remains in talks with “multiple parties.”

Investment banking posted a $1.38 billion second-quarter profit, though trading revenue fell short of levels posted by Goldman and JPMorgan.

Credit card operations lost $1.62 billion, and Lewis said new credit card rules in 2010 could reduce annual card revenue by $700 million, similar to what JPMorgan expects.

The home lending and insurance business lost $725 million, though mortgage and home equity loans rose to $114.3 billion from the first quarter’s $89.26 billion. Bank of America bought mortgage lender Countrywide Financial Corp last July.