The second-largest U.S. bank announced the cost cuts as it posted second-quarter results that illustrate the pressure it is under. Bank of America said its loan book shrank from the same quarter last year, its interest income fell 15 percent, and each of its divisions except for mortgage lending posted lower revenue.

Mortgage lending improved mainly because in last year's second quarter the group took more than $20 billion of charges.

With revenue under pressure, the bank cut costs 25 percent, helping it post a profit for the quarter of $2.5 billion. Its work force shrank by more than 12,000 from a year earlier to 275,460.

Bank of America began the first phase of its cost-cutting plan in 2011, with the goal of saving $5 billion a year and eliminating 30,000 jobs by the end of 2014. That phase of the plan focused on consumer banking and information technology.

The second phase of the plan, known as Project New BAC, aims to cut costs by $3 billion a year by mid-2015. It does not target a particular number of job cuts, but does focus on capital markets businesses, investment banking, commercial lending and wealth management. Executives have said they will likely need fewer job cuts in this round because people in the businesses involved tend to be better paid.

The Charlotte, North Carolina-based bank has lagged its peers in recovering from the financial crisis, largely due to losses tied to its 2008 purchase of subprime lender Countrywide Financial.

JPMorgan Chase & Co, Wells Fargo & Co, and Citigroup Inc in recent days all beat analysts' earnings estimates, helped by cost-cutting, stronger mortgage business and better consumer delinquency rates.

Like JPMorgan, Citigroup, and Goldman Sachs Group Inc, Bank of America posted weaker equity trading revenue. Underwriting and merger advisory fees also dropped.

Revenue at Bank of America totaled $21.97 billion in the second quarter, down from $22.28 billion in the first quarter but up from $13.24 billion a year earlier when it took mortgage charges. Banks are struggling to boost revenue amid weak demand, low interest rates and new regulations crimping fees.

Squeezed by low rates, the bank reduced its long-term debt by $53 billion in the quarter, to $301 billion, by allowing bonds to mature and buying back securities. That move, along with further planned redemptions, should save the bank about $300 million in quarterly interest costs.

"We are fighting with all the arrows in our quiver that we have," Chief Executive Officer Brian Moynihan said in a conference call with analysts.

The bank's provision for loan losses fell to $1.77 billion in the second quarter, its lowest level since the first quarter of 2007, compared with $3.26 billion a year ago.

Mortgage banking income increased only slightly from the first quarter to $1.66 billion but was a big improvement over a year ago, when the bank set aside reserves to cover investor requests to buy back soured loans.

Mortgage costs "are coming down," said Gary Townsend, president of Hill-Townsend Capital. "That is very important because that has been a huge drag over the past three years."

REGAINING MORTGAGE MARKET SHARE

Bank of America has been scaling back its home lending in the wake of massive Countrywide losses, but said it recaptured some market share in the second quarter compared with the first quarter.

The bank made $18 billion in mortgages in the latest quarter, up from $15.2 billion in the first quarter but down from $40.4 billion a year ago, before it stopped buying loans made by other lenders. By comparison, Wells Fargo, the largest U.S. home lender, originated $130 billion of loans in the quarter, including mortgages purchased from other lenders.

Bank of America still has mortgage issues to deal with. Mortgage bond investors are trying to get the bank to buy back some $22.71 billion of loans they say should never have been sold to investors, up from $16.09 billion in the first quarter and $9.92 billion in the second quarter of 2011. Claims could increase in the coming quarters, Bruce Thompson, the bank's chief financial officer, said on the conference call.

In February, Bank of America stopped selling some mortgages to government-backed mortgage entity Fannie Mae in a dispute over requests to buy back soured loans. Thompson said the disagreement continues and that the fight will likely end in legal action or a settlement.

The bank added $395 million to its reserves for loan repurchase requests in the second quarter, up from $282 million in the first quarter, giving it total reserves of $15.9 billion. Wells Fargo and PNC Financial Services Inc also padded their reserves in the second quarter, citing increased repurchase requests for loans sold off during the housing boom.

Analysts peppered Bank of America executives with questions about when quarterly costs to handle delinquent mortgage loans will start to tail off. The bank spent $2.6 billion on those operations in the second quarter, down slightly from the first quarter. Thompson signaled those expenses have peaked but won't start going down until next year, after the bank completes work required under settlements with federal and state regulators.

Bank of America's total loans fell to $892.3 billion from $902.3 billion in the first quarter as it continued to shed assets from the credit crisis. JPMorgan, Wells Fargo and Citigroup showed slight increases in total loans from the first quarter.

However, Bank of America's loans to businesses were up from a year ago to $267.8 billion.

The bank said it made better-than-expected progress in building capital in the quarter. Its projected Tier 1 common capital ratio under so-called Basel 3 standards reached an estimated 8.1 percent of risk-weighted assets. The bank had previously said it would be above 7.5 percent by year-end.

Thompson said the bank is cooperating with regulatory inquiries over bank lending rates, such as the London interbank offered rate (LIBOR), but declined to provide details.

Bank of America shares were down 1.8 percent to $7.78 in early-afternoon trading.

(Reporting by Rick Rothacker in Charlotte, N.C.; Editing by Lisa Von Ahn, Maureen Bavdek and John Wallace)

By Rick Rothacker