Mortgage-related charges drove a sharp drop in quarterly earnings at Charlotte, North Carolina-based Bank of America, with the bank reporting fourth quarter net income of just $268 million, compared with $5.26 billion in earnings one year earlier. BofA took a whopping $5.44 billion hit in the capital markets, with most of that charge coming on CDO writedowns, it said; it also added $1.33 billion to loss reserves, as the bank girded itself for what looks to be a tough 2008. “Our fourth quarter results were severely impacted by ongoing dislocations in capital markets and the slowing economy,” said Kenneth D. Lewis, chairman and chief executive officer. “Even given that environment, we certainly are not pleased with our performance. However, we are cautiously optimistic about 2008, though we believe economic growth will be anemic at best in the first half.” Enough in reserve? The bank ended the fourth quarter with a $11.59 billion in loan loss reserves, it said, compared with $9.54 billion in the third quarter and $9.02 billion in the year-ago period. Non-performing assets were at $5.95 billion at year-end, BofA said, with recently-acquired LaSalle Bank contributing $1.21 billion to the year-end NPAs. It’s worth noting coverage ratios here. One year ago, BofA reported that NPAs were 0.26 percent of loans, leases, and foreclosed properties; loss reserve coverage stood at 1.28 percent. This year, NPAs rose to 0.68 percent of loan-related assets; loss reserve coverage barely rose, however, to 1.33 percent. If I were on the earnings calls — which in a few days, I’ll be free to start doing — I’d want to ask why reserve coverage only increased 4 percent within a twelve month period where NPAs were increasing more than 160 percent. Nonetheless, while BofA doesn’t break out much in its earnings report that is specific to mortgage banking activities, it did note that 2007 saw first mortgage originations grow 22 percent to more than $104 billion. The bank’s “No Fee Mortgage PLUS” program drove much of the growth, accounting for 16 percent of first mortgage production during the fourth quarter. For more information, visit http://www.bankofamerica.com. Disclosure: The author held no positions in BAC when this post was originally published.